The “Abandoned Baby” pattern is a rare but powerful candlestick reversal pattern used in technical analysis to identify potential reversals in the price direction of an asset. It can occur at both market tops (bearish reversal) and market bottoms (bullish reversal). Here’s a breakdown of the pattern:
Characteristics of the Abandoned Baby Pattern
Bullish Abandoned Baby (Bullish Reversal)
- Downtrend Preceding the Pattern: The market is in a downtrend.
- First Candle: A large bearish (red/black) candlestick appears, continuing the downtrend.
- Second Candle: A small doji candle (or very small real body) appears after a gap down from the first candle. This doji should have no overlap with the real body of the first or third candles (it “gaps” below the first candle and above the third candle).
- Third Candle: A large bullish (green/white) candlestick appears, gapping up from the doji. This candle should also have no overlap with the doji.
Bearish Abandoned Baby (Bearish Reversal)
- Uptrend Preceding the Pattern: The market is in an uptrend.
- First Candle: A large bullish (green/white) candlestick appears, continuing the uptrend.
- Second Candle: A small doji candle (or very small real body) appears after a gap up from the first candle. This doji should have no overlap with the real body of the first or third candles (it “gaps” above the first candle and below the third candle).
- Third Candle: A large bearish (red/black) candlestick appears, gapping down from the doji. This candle should also have no overlap with the doji.
Interpretation and Significance
- Bullish Abandoned Baby: This pattern indicates a potential reversal from a downtrend to an uptrend. The appearance of the doji after a significant downtrend signals indecision in the market, and the subsequent large bullish candle confirms the reversal as buyers take control.
- Bearish Abandoned Baby: This pattern indicates a potential reversal from an uptrend to a downtrend. The appearance of the doji after a significant uptrend signals indecision in the market, and the subsequent large bearish candle confirms the reversal as sellers take control.
The abandoned baby candlestick pattern is a reversal pattern that signals a potential trend change. There are two types:
Bullish Abandoned Baby
The bullish abandoned baby pattern forms at the end of a downtrend and indicates a reversal to an uptrend. It consists of three candlesticks:
- A large bearish candle
- A doji candle that gaps down
- A bullish candle that opens higher than the doji
This pattern suggests the selling pressure is ending and bulls are taking over.
Bearish Abandoned Baby
The bearish abandoned baby pattern forms at the end of an uptrend and indicates a reversal to a downtrend. It consists of three candlesticks:
- A large bullish candle
- A doji candle that gaps up
- A bearish candle that opens lower than the doji
This pattern suggests the buying pressure is ending and bears are taking over. For both patterns, the key is that the doji candle is completely isolated from the first and third candles, with no overlap in the shadows. The larger the gaps, the stronger the potential reversal. Traders use the bullish abandoned baby to enter long positions and the bearish abandoned baby to exit longs and enter shorts. However, the pattern should be confirmed with other indicators and not used alone, as it can lead to false signals.
