Abandoned Baby Definition
The abandoned baby candlestick formation is a three bar reversal pattern that is similar to the morning and evening star formations and is a very reliable reversal signal when it occurs after a sharp rise or drop. While it is very similar to the morning star and evening star, it has one key difference. The real bodies and shadows cannot overlap from bar 1 to 2 and 2 to 3. This makes this pattern very unique, rare, and reliable at the same time. While the formation has baby in its name, just as the concealing baby swallow formation, it has more in common with the island reversal pattern.
The abandoned baby is a rapid shift in momentum from the bulls to the bears or visa versa and typically catches the other side off guard. Rallies off an abandoned baby bottom can be very rapid as short sellers will be forced to cover fast. Conversely, declines after the abandoned baby top can be just as fast as many longs sell their positions, aiming to keep most of their profits.
Structure of Abandoned Baby
- The first candlestick is in the direction of the primary trend
- The second candle is a doji which gaps in the direction of the primary trend, exhibiting no overlap with the real body or shadow of the previous candle
- The third candle is in the opposite direction of the first day and gaps in the opposite direction of the doji.
Chart Example of Abandoned Baby
In the above candlestick charting example, notice how the abandoned baby top comes in after a strong uptrend. This leaves the bulls trapped at the top of the formation with very little time to exit their winning positions. To the right of this formation is the abandoned baby bottom. This is the exact opposite of the abandoned baby top and is often the sight of a sharp short squeeze.
The Bullish And Bearish Abandoned Baby Candlestick Pattern
Bullish Abandoned Baby candlestick pattern
The Bullish Abandoned Baby candlestick pattern is a reversal pattern. The pattern has three candles. It forms at the bottom of a trend. In this pattern, the first candle is any long and bearish candle. The second candle is a small and bearish candle—or a Doji. The second candle doesn’t overlap the first or third candle. The third candle is any long and bullish candle.
This pattern forms when the forces of selling stocks shift to buying stocks. This happens when investors anticipate a trend change due to psychological or fundamental reasons.
In the Morning Star or Evening Star pattern, the second candle overlaps the first and third candle. In the Bullish Abandoned Baby pattern, there isn’t an overlap between the first and third candle. This shows a gap in the prices’ opening. The buyers or sellers are pushing the prices. As a result, a gap forms.
Bearish Abandoned Baby candlestick pattern
The Bearish Abandoned Baby pattern is a reversal pattern. The pattern has three candles. It forms at the peak of a trend. In this pattern, the first candle is long and bullish. The second candle is a small and bullish candle—or a Doji. The second candle doesn’t overlap the first or third candle. The third candle is long and bearish.
This pattern forms when the forces of buying stocks shift to selling stocks. This happens when investors anticipate a trend change due to psychological or fundamental reasons.
These patterns are useful for trend identification. The Bullish Abandoned Baby pattern can be used as an entry point. The Bearish Abandoned Baby pattern can be used as an exit point. It’s advisable to use a combination of patterns and indicators to determine your trading strategy.