Abandoned Baby is a small Doji candlestick (a small length candlestick) that exists at the top or bottom of an upward trend or downward trend while there is a gap formed between this candle, similar to the previous candle and the next.
It is considered as Abandoned Baby if only the gap exists, otherwise it will not be called a pattern.
In essence, it is a rare bullish three bar reversal pattern that is formed after a downtrend. This pattern exists with a down gap followed by a doji, suggesting an up gap, leaving the doji “abandoned” at the low.
Subsequently, it is a reversal pattern which suggests when formed, the trend is expected to change direction, but it doesn’t necessarily mean that the entire trend is anticipated to change.
There are times that this pattern is formed at the top of a small up movement that is formed inside a downward trend. After the pattern is formed, the up movement will be finished and the downward trend is expected to continue.
An Abandoned Baby that is formed at the bottom of a downtrend is known as bullish, while the one formed at the top of an uptrend is called bearish Abandoned Baby.
Bullish Abandoned Baby
A candlestick pattern used by traders to signal a reversal in the current trend, which is formed by three distinctive candlesticks that follow these conditions:
· The first candlestick is a large red bar positioned within a distinct downtrend.
· The second candlestick is a doji candle that is opened equally to the close and serve as the gap below the close of the first bar.
· The third candlestick is a large white bar positioned above the second bar (doji candlestick) and is used to show change of direction in trader sentiment.
In the standard version of the patter, the doji candlestick is positioned below the shadows of the first and third bars of the pattern. The gaps are called “open windows.”
Bearish Abandoned Baby
This pattern is formed with three of these conditions:
· The first candlestick is a large white bar positioned within a distinct uptrend.
· The second candlestick is a doji candle that is opened equally to the close and serve as a gap above the close of the first bar.
· The third candlestick is a large red bar positioned below the second bar (doji candlestick) and is used to show change of direction in trader sentiment.
It is rare candlestick, but a reliable pattern used to identify a change of direction in an uptrend. In fact, its accuracy of the reversal signal is well-improved, especially when it is used with other technical indicators such as MACD and RSI.
Abandoned Baby Bottoms are often used as a buy signal, which serves as a supporting confirmation in the form of a bullish tradable setup that is usually needed before a trader is to open for long-term position.
Get market insights and updates and subscribe to our daily newsletter! FSM News provides accurate market knowledge and information.