In Technical analysis, some candlestick patterns are rare to spot, but when spotted, they give a strong directional movement according to the nature of the pattern.
The Bullish Abandoned Baby candlestick pattern is one among such; it is a powerful candlestick pattern signalling a strong change in the trend.
In this article, we will understand the Bullish Abandoned Baby candlestick pattern, its structure, and the psychology behind the pattern formation. We will then cover an example scenario to learn how to trade with the pattern, along with its advantages and disadvantages.
What is the Bullish Abandoned Baby Candlesticks Pattern?
The Bullish Abandoned Baby candlestick pattern is a three-candle formation indicating the strong potential reversal in the ongoing trend from bearish to bullish momentum.
The word “Abandoned Baby” refers to the Doji candlestick in the middle candlestick pattern formed, as there is a gap down from the previous candlestick and a gap up opening of the next candlestick.
Structure
The Bullish Abandoned Baby candlesticks pattern is spotted at the bottom of a downtrend.
- First candlestick: A large bearish candlestick is formed, signalling the continuation of a downtrend ahead.
- Second candlestick: A small green or red Doji candlestick is formed with a gap down from the previous candlestick and displays the indecision movement of the security.
- Third candlestick: A strong bullish candlestick is formed, displaying buying pressure, as the candlestick opens gap up from the previous candlestick and indicates the trend reversal.
The Bullish Abandoned Baby candlestick pattern psychology
- Bearish Candlestick: The security is in a downtrend, as sellers are dominant, driving the price to its low, and it indicates the continuation of the downtrend ahead, forming a strong bearish candlestick.
- Indecision candlestick: After the first candlestick, the second candlestick opens with a gap down from the previous candlestick. It displays the seller’s strength and indicates the continuation of a bearish trend reversal, and buyers see an opportunity and step in aggressively to push the price up to its high. At the same time, the strength of buyers and sellers is balanced, as it closes near its opening, resulting in a Doji candlestick.
- Bullish closing and change in the trend: After the closing of the second candlestick, buyers dominate the trend with a gap-up opening from the previous candlestick, pushing the price up, and the third candlestick closes bullish, confirming the bullish trend reversal.
How to trade the Bullish Abandoned Baby Pattern?
The Bullish Abandoned Baby candlesticks pattern is versatile across all the frames, but is rare to spot on the price chart.
Entry:
- Enter the trade on the next bullish candlestick after closing above the high of the third candlestick.
Stop-loss:
- An ideal stop-loss is at the low of the second candlestick of the Bullish Abandoned Baby candlesticks pattern.
Target:
- The primary target is the next resistance line.
- The target for the trades can be based on your better risk-to-reward ratios.
- As the candlestick patterns are formed, signalling a reversal after the confirmation, book partial profit or trail the stop-loss accordingly.
Example Scenario:
In the image below, you can look at the chart of “INFOSYS Ltd” stock at a 1-day timeframe on 5th, 6th, and 7th October 1998. You can see the buy signal generated using the Bullish Abandoned Baby candlestick pattern, as it is a trend continuation candlestick.
What are the advantages of the Bullish Abandoned Baby candlesticks pattern?
- It provides a strong indication of the bullish reversal, as it is easy to understand and trade.
- After your entry, you can capture the entire trend, providing an early signal on trend reversal, and providing you with a good risk-reward ratio.
- As it is not spotted often, it helps beginners to control overtrading.
- The second candlestick and both gaps between the candlesticks act as a strong support for further price action.
What are the disadvantages of the Bullish Abandoned Baby candlesticks pattern?
- The Bullish Abandoned Baby candlestick does not provide trend confirmation within the pattern. You need to wait for the following candlestick.
- The second candlestick should be a doji and must have gaps on both sides as a strict rule for the pattern to form.
- In a sideways market, due to a lack of volume and a weak uptrend, it can Produce False Signals.
In Closing
In this article, we discussed the Bullish Abandoned Baby candlestick pattern, its structure, the psychology of the pattern, how to trade it, along with an example, and its advantages and disadvantages.
The Bullish Abandoned Baby candlestick is a powerful candlestick signalling the potential bullish trend reversal. At the same time, it offers limited opportunities for beginners with clear entry and exit signals. Making it a more reliable pattern to trade.
No indicator or tool is 100% accurate in the Security markets. When the Bullish Abandoned Baby candlestick pattern is combined with additional indicators or tools (RSI, MACD, or others), its efficiency and accuracy are high, and with proper risk management, discipline, and back-testing of the strategy paves the path to profitability.
