Bullish Abandoned Baby

What Is Bullish Abandoned Baby?

A Bullish Abandoned Baby is a significant indicator that is employed in technical analysis. It is a type of candlestick pattern that indicates the possibility of a downward trend coming to an end in the market. This pattern also signifies the potential for an increasing movement in the market prices.

It is a three-bar pattern that occurs after a downward trend. It comprises a solid downward candle, a gapped down doji, and finally, a strong bullish candle that gaps up. In some instances, there may be more than a single doji, and gaps may not exist after the first or second candle.

• A bullish abandoned baby is a crucial technical analysis indicator. It is a candlestick formation that signals the end of a downtrend and the likelihood of an upward price trend in the market.
• This pattern consists of consists of three candlesticks. They are a solid downward candle, a gapped-down doji, and a robust, rising candle that gaps upwards.
• This pattern can identify the initial phases of a new upward trend. Accurately trading this candlestick pattern may aid the traders in earning significant profits.

Bullish Abandoned Baby Explained

The bullish abandoned baby pattern represents a bullish reversal candlestick formation. This pattern comprises a three-candle pattern made up of a large red candle, a doji, and a large green candle. This structure appears near the bottom of the price chart when the sellers become weaker. Its creation indicates a possible trend shift from bearish to bullish.

This pattern appears when sellers get worn out, and buyers attempt to take control of the market. When the pattern appears, it demonstrates that the price movement has likely switched from bearish to bullish and that the buyers have substantially outperformed the sellers. The traders are specifically interested in this pattern because it is reliable.

How To Identify?

A bullish abandoned baby pattern consists of three candlesticks. It may appear in both bullish and bearish phases. A bullish formation takes place in the downward trend. It signifies a bullish reversal. The first candle that shows up in the downward trend is red or black. The one that comes next is a star formed below the first candle's closing. The third and final candle is an upward candle that originates above the Doji pattern and ends within the first candle's body.

How To Read?

The bullish abandoned baby in trading is relatively uncommon among the reversal patterns.

Source

In the chart from TradingView above, we can see that the pattern starts with an enormous down candle. A doji candle comes next. It exhibits a gap below the candle that comes before it. The doji candle is eventually followed by another candle, which opens substantially higher and moves rapidly to the upside.

How To Trade?

Some methods to trade the bullish abandoned baby candlestick pattern include the following:

• Entering the market: This pattern suggests an end to the downtrend. Therefore, traders take a long position after the third candle appears. They set a stop-limit order immediately above the third candle.
• Stop-loss: To protect against losses that result from an unanticipated change, traders set a stop-loss limit immediately below the Doji Star's down shadow. Some traders might attempt to mitigate their risk exposure by positioning the stop-loss order below the endpoint of the third candle's downward wick.
• Profit objective: Considering that this trading approach does not signify a profit target, traders may have to employ additional trading instruments to verify the boundaries.

Examples

Let us study the following examples to understand this pattern:

Example #1

Suppose Jim is a trader who wants to buy the stocks of a company named Panache Softwares. He started studying the candlestick patterns of the recent price movements of the company's stock to analyze when he should ideally buy the stocks. The Panache Softwares price trend started with a long red candlestick, implying the continuation of the current decline and indicating substantial selling pressure.

The second candlestick was a Doji that gapped below the first candlestick. It reflected the market hesitation where the market was taking a break, suggesting uncertainty among buyers and sellers. The pattern came to an end with a third candlestick. It was a long green candlestick that appeared above the Doji. It represented a sudden reversal, with buyers gaining market control and pushing the prices higher. This is an example of the abandoned baby pattern.

Example #2

The abandoned baby pattern initially showed up on February 11, 2016. It occurred when the financial sector exchange-traded fund (ETF), XLF, opened substantially lower, followed by closing at a 16-month low before increasing significantly higher in the next session. On February 11, 2016, the intraday trading range was separated from the previous and subsequent sessions by gaps. As a result, the February 11 high of $19.88 was lower than the February 10 low of $20.27 and the February 12 low of $20.04. 

Advantages And Disadvantages

The advantages associated with this pattern are:

• This pattern has the potential to capture the early phases of a new uptrend. The pattern usually shows up following a downtrend. It suggests a potential reversal and the onset of an upward price trend. Detecting this pattern early on enables traders to position themselves strategically for the price spike approaching.
• Successfully trading this pattern can result in substantial earnings. If the anticipated trend reversal occurs and the price starts to move higher, traders who entered the market at the appropriate time may gain significant profits when the uptrend continues. Many traders are drawn to this pattern because of its earning potential.

The disadvantages are:

• This pattern has the potential of receiving a false signal. This trend signals an expected reversal, but it does not ensure that the price is going to start rising. Traders must take caution and not depend only on this pattern without also evaluating additional factors and verifying signals.
• If the pattern's projected reversal does not appear, traders may suffer losses. Not all patterns may be successful in providing the intended results, and there always remains a certain level of unpredictability in trading. Traders must have adequate risk management measures in place to reduce the likelihood of losses.

Bullish Abandoned Baby vs Morning Doji Star

The differences are as follows:

Bullish Abandoned Baby

• This pattern may appear in a downward trend, reflecting a trend reversal. It has the appearance of a Doji Star or cross, with no actual body and only upper and lower shadows.
• The pattern has candles developed on both sides of it with apparent real-bodies in an uptrend and downtrend, known as parents.
• It is interpreted as a strong trend reversal indicator.

Morning Doji Star

• The Morning Doji Star candlestick is a reversal signal on price charts. It is made up of three candles and serves as an indicator of a possible trend reversal from bearish to bullish.
• This development signifies a shift in market sentiment, with buyers gaining charge.
• The Morning Doji Star suggests market indecision.

Frequently Asked Questions (FAQs)

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