What Is a Bullish Abandoned Baby?
The bullish abandoned baby is a distinct type of candlestick pattern indicating a potential reversal of a downtrend. This pattern consists of three distinct price bars and forms during a downtrend. The sequence begins with a large down candle, followed by a doji candle that gaps below the first. The pattern is completed by a subsequent candle that opens higher than the doji and advances aggressively upward.
Key Takeaways
- The pattern follows a persistent downtrend, signaling a potential end.
- It involves a strong down candle, a gapped down doji, and a bullish candle gapping up.
- Suggests a reversal from bearish sentiment to a more bullish outlook.
- Slight variations in the pattern may still hold significant implications for traders.
Understanding the Bullish Abandoned Baby
Traders consider the bullish abandoned baby as a signal that the downtrend might be reversing. Although rare due to the specific conditions required, the pattern comprises:
- First Bar: A significant down candlestick amid a downtrend.
- Second Bar: A doji candle gapping below the close of the first bar.
- Third Bar: A strong upward-moving candle, opening above the doji.
The core psychological insight of the pattern lies in a preceding aggressive sell-off (first down candle), followed by a doji that indicates indecision and potential waning selling pressure. The final bullish candle’s rise implies buyers regaining control.
Traders can manually search for this pattern or utilize trading software for automatic identification.
Bullish Abandoned Baby Pattern
Special Considerations
While classical definitions are strict, variations like a non-gapping doji or multiple dojis are increasingly accepted, suggesting that flexibility doesn’t compromise the pattern’s effectiveness.
Trading the Bullish Abandoned Baby
Several approaches exist for trading this pattern effectively:
- Entry: Consider a buy stop-limit order, entering the market just above the third candle’s high.
- Stop-Loss Order: To manage risk, place a stop-loss order below the doji’s lower shadow. A more conservative approach is to position it below the third candle’s low.
- Profit Target: There’s no fixed target; options include using Fibonacci retracement levels or setting targets using risk/reward ratios.
Example of a Bullish Abandoned Baby
Given the pattern’s rarity, its precise requirements occasionally justify slight relaxation. For example, variations seen in Macy’s Inc. after price declines produced significant upward movements.
A Series of Bullish Abandoned Baby Patterns
- Pattern One: Non-gapping doji variation, followed by a strong uptrend.
- Pattern Two: Traditional with two dojis, signaling a strong upward move.
- Pattern Three: Non-gapping doji, succeeded by an uptrend initiation.
Similar Patterns
This pattern bears resemblance to evening star and morning star formations, with the key differentiator being the doji’s gap that makes it rarer. It shares conceptual ground with the island reversal pattern from traditional bar charts but functions with a single candle.
Related Terms: bearish abandoned baby, doji, evening star, morning star, island reversal.
References
- American Association of Individual Investors. “Illuminating Trends: An Intro to Japanese Candlestick Charting”.
