The Abandoned Baby is a three-candle candlestick pattern. It can be found in both bearish and bullish trends. The pattern resembles an abandoned baby between parents. These patterns indicate the current trend.
These patterns are also used for trade entry and exit by the traders. Though these patterns occur during a trend, these patterns also forecast potential trend reversal.
Why is the Abandoned Baby Candlestick Pattern Named So?
The abandoned baby candlestick pattern typically has a Doji pattern (with no or very small body) between two large bullish or bearish candles.
The pattern looks like the parents are standing at two sides (large two candles) but abandoned the baby (Doji) standing in the middle alone. The name seems very appropriate for this pattern.
How Many Types of Abandoned Baby Candlestick Patterns Are There?
We have two types of abandoned baby candlestick patterns. A bullish abandoned baby and a bearish abandoned baby. The bullish abandoned baby appears in a bullish trend whereas the bearish abandoned baby candlestick pattern appears in a bearish trend.
Bullish Abandoned Baby Candlestick Pattern
What is a Bullish Abandoned Baby Candlestick Pattern?
The bullish abandoned baby consists of three candlesticks. The first candle is a large bearish candle, followed by a Doji candle and ends with a large bullish candle.
The formation of an ideal bullish abandoned baby pattern is shown in the following diagram.
Found at the bottom of a bearish trend, the bullish abandoned baby forms a bullish reversal pattern. As we see from the diagram above the pattern starts with a large red candle. This candle is a part of the prevailing bearish trend.
Next comes the second candle. This is also a bearish candle. This candle has a tiny body. It opens and closes far below the first candle. This is the abandoned baby.
The third candle opens with a gap up price. It is also a large candle. The candle is a bullish candle and closes in the positive territory.
The bullish trend reversal starts from the third candle.
How to Identify a Bullish Abandoned Baby Candlestick Pattern?
The bullish abandoned baby patterns can be easily recognized. This pattern rests at the very bottom of a bearish trend. That is why the first candle is red which forms a part of the prevailing bearish pattern.
The second candle, which is a Doji, stays at the lowest part of the pattern, apart from the red candle. The third candle is a green candle from which the uptrend starts.
If we imagine the bearish and bullish trend converging at the Doji. which is the vertex of the V-shaped pattern formed in the candlestick chart, the picture becomes very clear and recognizable.
In the diagram above we can see this V-shaped pattern standing on its vertex, the Doji candlestick.
Bearish Abandoned Baby Candlestick Pattern
What is a Bearish Abandoned Baby Candlestick Pattern?
The bearish abandoned baby pattern is found in uptrends. This pattern has three candles, similar to the bullish abandoned baby. The first is a green candle.
The second candle, the abandoned baby is also green, whose opening and closing price are above the first candle. The third candle is a bearish candle, having an opening and closing price below the second candle.
The diagram showing the bearish abandoned baby pattern above, the three candles marked in a box, completes the pattern.
The bullish trend ends inside the pattern and the bearish trend also starts from the pattern. The abandoned baby is staying atop, away from others.
Thus, this bearish abandoned baby indicates the prevailing trend and trend reversal.
How to Identify a Bearish Abandoned Baby Candlestick Pattern?
Just look at the diagram above and imagine it is the top of a triangle or an inverted V. The uptrend forms one hand and the downtrend completes the other hand of the imaginary inverted V pattern. Both the hands are meeting at the Doji candlestick.
Thus, we find this inverted V-shaped pattern right on top of the bullish trend at the start of the bearish reversal pattern. This pattern is easily recognizable.
The first candle of the bearish abandoned baby indicates the existence of the prevailing trend and the third candlestick shows the start of the bearish reversal pattern.
Sitting at the top of a bullish trend, this pattern is easily recognizable even to a newcomer, if the person knows what to look for. It is a popular reversal pattern.
How Do You Analyze the Abandoned Baby Pattern?
The abandoned baby candlestick chart patterns have some unique characteristic features. The first candle denotes the prevailing trend.
The Doji candlestick rests at the top for a bearish trend reversal and at the bottom for a bearish trend reversal, which forms the pivotal point for the reversal trend.
The colour of the small body of the Doji represents the prevailing trend which is going to diminish and a reversal to take place.
The third candle starts the trend reversal. Therefore, it takes the colour of the upcoming reversal trend.
For a bullish trend reversal from a bear trend, the third candle is bullish and paper as a green large candle in a candlestick chart. And for a bearish reversal from a bull trend, the third candle is bearish and red in colour.
A trader analyses the abandoned baby pattern and takes trade after getting confirmation of the trend reversal.
Importance of Doji Star in Abandoned Baby Pattern
The Doji star formation is a pivotal feature of abandoned baby patterns. This is the candlestick that identifies and characterizes the pattern. The Doji candle is left in an empty place where none of the first or the third candles can reach. The Doji candlestick keeps a gap from them.
In a bullish trend, the colour of the Dojistar is green. The body and the shadows of the Doji never overlap with that of the other two candles.
The Doji sits at the top from where the reversal pattern starts. Being the abandoned baby, Doji candlesticks stays away from its parents, the two green and red candlesticks.
A similar pattern occurs in a downtrend also. The Doji sits at the lowest point of the reversal pattern, at the bottom of the bearish trend. The colour of Doji body is red, because of the prevailing trend. The wicks of Doji do not overlap with that of the other two candles of the reversal pattern.
As shown in the diagram above, we can see a distinct gap between the other candles and the Doji. This phenomenon occurs in both the abandoned baby patterns as clearly shown in the diagram. The abandoned baby pattern is identified by the abandoned baby only, the Dojistar.
Significance of Doji Star
Similar to its structural significance, the Doji candlestick plays a pivotal role in abandoned baby candlestick patterns. The very small body of Doji has the same colour as that of the first candle indicating the existing trend.
But the Doji formation also indicates that there is indecision among traders and the reverse trend is already being seen among the traders.
The appearance of the Doji candlestick in this pattern prepares the trader for an imminent price reversal.
A trader looks for the Doji formation in a price gap, at the top or bottom of a trend. Once confirmed the trader expects a price reversal to start from the third candlestick in an abandoned baby pattern.
The Psychology Behind Abandoned Baby Pattern
In candlestick patterns, there is always a story between the bulls and the bears. The abandoned baby formation can be divided into three phases. The rally, the base and the drop.
The rally phase shows the prevailing trend. In a bullish pattern, the traders take prices up continuously through impulsive buying. The first candle shows these expectations. But, the formation of wicks shows us that the bears are fighting the bulls.
Similarly, in bearish conditions, the bears are consistently pulling the price down. The impulsive selling shows the bears are pulling the price down relentlessly. But the first red candle with wicks shows the infighting among the bears and the bulls.
After the rally part is over with the formation of the first candlestick, we find the Doji formed a little away from the first candle.
As already been discussed, the price gap is there when Doji forms. In a bull market, the bulls push the price further up and open the candle with a gap. Here the opposing trades form a Doji, showing the indecision among the traders.
The long wicks and small body of the Doji tell the story. But here also, the traders of the prevailing trends show they are slightly stronger but not in control of the situation.
The hesitation on the part of traders creates a price resistance or support zone here. The Doji candle becomes the resistance for the bulls. And for the bearish trend, the Doji price creates a support zone.
This is the reason we call it a formation of base. Only from the candlestick, does the prevailing trend gets stopped by the opposing traders.
The next phase is the drop phase. The price starts moving in the opposite direction. The opposing traders take control of the market and push the price in the opposite direction.
These patterns of abandoned baby candlesticks tell us how once the victors get conquered by the resistance group. This is as if a revolt is taking place. This makes the story more beautiful.
A trader interprets this story and acts accordingly. The clearer the interpretation of a trader’s psychology, the better the next trade.
Example of Abandoned Baby Candlestick Pattern
Bullish Abandoned Baby Pattern
The following candlestick chart shows the formation of the bullish abandoned baby at the end of a bearish trend. The trader creates a long position after the bullish reversal starts and the price goes over the highest close of the bullish abandoned baby.
Bearish Abandoned Baby Pattern
The following chart shows how the price reversal started after the bearish abandoned baby pattern is seen in the chart.
What Does the Abandoned Baby Pattern Tell a Trader?
Bullish Abandoned Baby Pattern
The bullish pattern indicates the existing price trend, the price resistance zone and the start of a new bearish trend. All this information is available from this pattern.
Bearish Abandoned Baby Pattern
Similar to the bullish pattern, the bearish pattern informs us of the prevailing bearish trend, the price support zone and the bullish price reversal that happens from the third candle.
How to Trade the Abandoned Baby Candlestick Pattern?
An abandoned baby pattern can be traded in different ways. But trading bullish and a bearish pattern is similar. In addition to trading the pattern, people also use this pattern to exit from the current trend following the price reversal.
Trading a Bullish Abandoned Baby Candlestick Pattern
For a bullish abandoned baby candlestick pattern, the trade entry is taken above the highest candle of the pattern, usually the first candle. See the candlestick chart below. Profit depends upon the discretion of the trader. The trader may wait till the next price resistance or take profit at the preferred risk/ reward ratio.
Trade Entry
Buy the stock above the high of the tallest candle of the three, usually the first candle.
Stop loss
The stop loss is placed just below the lowest point of the Doji.
Trading a Bearish Abandoned Baby Candlestick Pattern
Trading the bullish pattern is similar to the bullish pattern. Profit-taking is also similar.
Entry
The stock is sold just below the low of the price pattern, usually the low of the first candle of the pattern.
Stop loss
The stop loss is placed just above the highest price point of the Doji candlestick.
Trading Abandoned Baby Pattern with Moving Average
Trading the abandoned baby with a moving average gives more precise entry and exit. Shown below is a trading of a bullish abandoned baby with a moving average. Above the third candle, the price crosses the 30-period EMA line which is ideal for a bullish entry. The trader exits the trade when the price comes below the 30 EMA line. The same trading technique is applied for trading bearish abandoned baby candlestick pattern also.
Difference between Bullish Abandoned Baby Pattern and Morning Star Pattern
The basic difference with the Morning Star pattern is that the Doji candle does not overlap with any of the two candles in bullish abandoned baby. But in the Morning Star pattern, the Doji overlaps with other candlesticks in the pattern. Also, in morning star there is only one Doji, but for an abandoned baby there can be more than one Doji.
Difference between Bearish Abandoned Baby Pattern and Evening Star Pattern
There is no gap in the evening star candlestick pattern and there is only one Doji. But in bearish abandoned baby, there is a price gap between Doji and other candles. Also, the bearish abandoned baby may have more than one Doji.
Conclusion
Abandoned baby patterns are seldom seen. But a valid pattern is accurate and gives good trading opportunities. If the abandoned baby patterns are traded with moving average or with RSI or other indicators the trading accuracy increases.
