What is Abandoned Baby Pattern?
A very rare candlestick pattern that signals a reversal pattern, that is, from bulls to bears and from bears to bulls. In short, this pattern signals a rapid shift in the momentum and catches the other side.
Identification of the formation of the pattern
- The first candle must be in the direction of the main or the primary trend.
- The second candle must be doji which opens with a gap up or gap down with the first candle.
- The third candle must open with a gap in the opposite direction of the doji and this third candle will be opposite of the first candle formation, that is, if the first candle is bullish, then the third candle will be bearish and vice versa.
Bullish Abandoned Baby
- The formation will occur in a downtrend, which means the primary trend will be bearish.
- The first candle will be a large black candlestick.
- The second candle will be doji which will open with a gap down and the closing of the doji will be below the closing of the first candle.
- The third candle will open with a gap up, that means its opening will be above the doji candle.
Bearish Abandoned Baby
- The formation will occur in an uptrend, which means the primary trend will be bullish.
- The first candle will be a large white candlestick.
- The second candle will be doji which will open with a gap up and the closing of the doji will be above the closing of the first candle.
- The third candle will open with a gap down, that means its opening will be below the doji candle.
- After a solid uptrend or downtrend, there is a pause, a moment of uncertainty indicated by the formation of doji. Then, the momentum suddenly shifts. If there had been an uptrend earlier, the bears take control and push the price downward. If there had been a downtrend previously, the bulls take control and push the price upward. This rapid switch conveys a strong reversal.
Point of Care
- It is very important to notice the pattern with great care, else you might end up spotting a Morning Star or Evening star candlestick pattern.
- The identification of the Abandoned Baby pattern is gaps. There must be Gaps between the first and the second candle as well as proper gap between the second and the third candle. The larger the gaps, the greater the reversal.
- 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.
This is the daily chart of Kajaria Ceramics. From the chart, it is clear that the scrip was facing the downtrend for the year 2018. The downtrend was seen in the month of September and October also, and the same is well indicated on the price chart with an arrow indicating the downtrend. The formation of Abandoned Baby Candlestick pattern was noticed on the price chart on Oct 22 to Oct 24 where:
First published on 17 January 2019.