In Technical Analysis, Candlestick patterns are considered as a representation of the market structure. They give us a clear picture of the price movement and how market participants interact at any given time. In this article, we will be discussing the Bearish abandoned baby candlestick pattern.
Both bullish and bearish abandoned baby candlestick patterns signal a possible trend change. Abandoned baby gets its name from the second candle of the pattern which looks like floating on the chart by itself like it’s been abandoned by the first and third candle.
What is Bearish abandoned baby candlestick pattern
Bearish abandoned baby candlestick pattern consisting of three candles, first one is a bullish candle indicating rising prices or continuation of the existing uptrend, a second doji candle showing indecision between bulls and bears, and a third bearish candle with falling prices to the downside.
All the three candles complete the pattern to signal a short term reversal in current upward trending price.
The most important candle in bearish abandoned baby pattern is the formation of the 2nd candle which is a Doji. The doji candle should have a gap up opening and should close the session with price unchanged, which means open and close should be the same price.
Rule of recognition
In the bearish abandoned baby pattern, following conditions are to be satisfied;
- The first candle is a bullish candle closed higher as a continuation of the uptrend.
- Second candle opens with a gap up showing bulls are still in control, but throughout the session traded with a tight trading range to close as a doji.
- The third day has a gap down opening showing bears are stepping in, bulls did not show up as a result the candle closes near or below the close of the first day.
The bullish variation of the same pattern is the bullish abandoned baby candlestick pattern which signals a reversal towards an uptrend after the existing downtrend.
Psychology behind bearish abandoned baby candlestick pattern
Bearish abandoned baby formation shows that buying has been at least temporarily exhausted and it’s a start of a price moving down.
First candle of the bearish abandoned baby candlestick pattern shows that the buyers are in control of the existing uptrend due to which price is moving up aggressively.
The price in the next candle gaps up and closes with a tight range by forming a Doji candle, which shows that buying is leveling off as the open and close prices are nearly the same, in other words sellers are stepping in and buyers are losing momentum.
When the third candle gaps down than the low of the doji, it clearly shows that sellers have taken control of the market and buying has at least temporarily exhausted.
Counter trend traders always look for these types of patterns to trade against the trend to have an early entry to a major down move.
With an expectation that the price will move lower, some traders prefer to enter on the break of the third bearish candle of the pattern. Aggressive traders prefer to enter on the third candle itself with a tight stop loss to have an early entry to the down trend.
Abandoned baby pattern is very rare to see as price movements need to meet certain specific criteria for pattern formation. You can see these types of patterns when selling exhausted in an uptrend.
Both bearish and bullish abandoned baby patterns are similar to the evening star and morning star pattern in candlestick charting. The only difference that makes the abandoned baby candlestick pattern different is the formation of the Doji candle.
Here is a list of candlestick patterns for your reference;
- Evening Star
- Morning Star
- Bullish Abandoned baby candlestick pattern
- Three Inside up/down
- Three outside up/down
- Inside Bar
- Bullish Piercing
- Dark Cloud Cover
- Spinning Top
- Shooting Star and Inverted Hammer
- Hammer & Hanging Man
- Gravestone, Dragonfly and long-legged Doji
- Engulfing Candlestick Pattern
- Spinning Top
- Marubozu
Be sure you practice identifying and trading these candlestick patterns on a demo account before trading them with real money.
In addition to the disclaimer below, please note, this article is not intended to provide investing or trading advice. Trading in the stock market and in other securities entails varying degrees of risk, and can result in loss of capital. Most investors and traders lose money. Readers seeking to engage in trading and/or investing should seek out extensive education on the topic and help of professionals.
