Bearish Abandoned Baby Candlestick Pattern (Backtest)

Last Updated on January 28, 2023

The Bearish Abandoned Baby pattern is a bearish reversal candlestick formation that appears in an uptrend and signals a potential trend reversal. This pattern is characterized by a gap up, followed by a Doji candlestick with a gap down, creating the appearance of an “abandoned baby.”

In this article, we will delve into details about the Bearish Abandoned Baby pattern, exploring what it is and how to identify it. We will also discuss how to interpret this pattern in the context of the market and understand the psychology behind it.

Additionally, we will explore some trading strategies for using the Bearish Abandoned Baby pattern as a signal and address the risks and limitations of relying on this pattern in trading.

What Is A Bearish Abandoned Baby Pattern?

A Bearish Abandoned Baby is a candlestick pattern that appears in financial market charts such as forex, stock, and futures markets. It is a bearish reversal pattern, which means it suggests that the current uptrend may be coming to an end and that prices may start to decline.

The pattern is characterized by three candlesticks. The first candlestick is a large bullish candlestick, followed by a Doji candlestick. The Doji is a candlestick with a small body with virtually equal upper and lower shadows, indicating indecision or a balance of buying and selling pressure. The third candlestick is a large bearish candle that opens slightly above the high of the first candlestick and closes below the low of the Doji candlestick. (See graphical presentation below.)

The Bearish Abandoned Baby pattern gets its name from the fact that the Doji candlestick is “abandoned” between the two large bullish and bearish candlesticks, which are like the “parents” of the Doji. This pattern is considered bearish because it indicates that the bulls (buyers) initially had control and pushed prices higher, but the bears (sellers) were able to gain control and push prices back down.

Identifying The Bearish Abandoned Baby Candlestick

To identify a Bearish Abandoned Baby candlestick pattern, traders typically look for the following characteristics:

  1. The first candlestick is a large bullish candle usually depicted in white or green. This candlestick should have a large body, which means the open and close prices are significantly different. The large body of the candlestick indicates that the bulls (buyers) were in control and pushed prices higher.
  1. The second candlestick is a Doji candlestick. As mentioned earlier, a Doji has a small body with virtually equal upper and lower wicks, indicating indecision or a balance of buying and selling pressure. The Doji candlestick should open and close at or very close to the same price.
  1. The third candlestick is a large bearish candle, usually depicted in red or black. This candlestick must close within the body of the first candle (the bullish candle). It opens slightly above the high of the first candlestick and closes below the low of the Doji candlestick. This indicates that the bulls initially had control, but the bears were able to push prices back down.

To confirm the Bearish Abandoned Baby pattern, traders typically wait for the price to break below the low of the first bullish candlestick, this is considered a bearish breakout. Some traders may also use other technical indicators, such as volume or momentum, to confirm the pattern.

It’s important to note that the Bearish Abandoned Baby pattern is just one candlestick pattern among several others that traders can use in their analysis and is not a guarantee of future price movements. It’s always important to use multiple technical and fundamental analysis techniques and consider the overall market context when making your trading decisions.

To better understand what the pattern looks like let’s show you a graphical presentation of Advance Block.

The pattern can look like this:

Bearish abandoned baby pattern

If we zoom out such a pattern can take a form like this:

Bearish abandoned baby pattern example

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Interpreting The Bearish Abandoned Baby In The Context Of The Market

Knowing what makes a candlestick pattern a Bearish Abandoned Baby is essential as a trader. To certify a Bearish Abandoned Baby pattern, you must look for the following characteristics.

  • The pattern should occur in an uptrend.
  • The first candlestick should be a long bullish candle which indicates intense buying pressure during its formation period.
  • The second candlestick should be a Doji which indicates indecisions in the market.
  • The third candlestick should be a long bearish candle which indicates a strong selling pressure when it was formed.

Suppose these conditions have been met; it is equally important to consider the following three market conditions before placing your trade.

  1. Market Trend

The Bearish Abandoned Baby pattern is more reliable when it appears after a sustained bullish trend. If the market is already bearish, the Bearish Abandoned Baby pattern may be insignificant.

  1. Volume

The volume of trading activity during the formation of the Bearish Abandoned Baby pattern can provide additional context. A high volume during the pattern formation may indicate a strong bearish sentiment, while a low volume may indicate a lack of conviction among traders.

  1. Confirmation

It is important to wait for confirmation before making any trades based on the Bearish Abandoned Baby pattern. This can come in the form of multiple bearish candles or a break below a key support level that came back to retest.

Bearish Abandoned Baby Psychology

The psychology behind the Bearish Abandoned Baby pattern can be understood by looking at the three candlesticks that make up the pattern.

The first candlestick, a long bullish candle, represents strong buying pressure. It indicates that there are many buyers in the market, and they are confident about the direction of the market.

The second candlestick, the Doji, represents indecision or a lack of direction in the market. This may be because there are equal numbers of buyers and sellers or because traders are unsure about the market’s direction.

The third candlestick, a long bearish candlestick, represents strong selling pressure. It indicates that there are many sellers in the market, and they are confident about the direction of the market.

Together, these three candlesticks suggest that the market is going through a period of indecision but that the sellers are ultimately winning out over the buyers. This may be because traders are losing confidence in the uptrend and are beginning to sell off their positions. Therefore, the Bearish Abandoned Baby pattern indicates that the market may turn bearish.

Trading Strategies For The Bearish Abandoned Baby Pattern

Trading the Bearish Abandoned Baby pattern involves identifying the pattern on the chart you want to trade, whether stocks or currency pairs. Analyze the market context, and decide your trading approach based on your analysis and risk appetite.

After identifying the pattern and ensuring that it formed after a long bullish run, consider the economic factors like the important news that may influence the market. Also, look at the technical indicators such as moving averages, Bollinger bands, and the relative strength index (RSI) to see if they support a bearish reversal.

Then decide on your trading strategy based on the analysis you’ve made. Make sure your strategy suits your risk appetite and trading goals. After that, determine if you want to scalp, swing, or ride the trend for a long time.

How To Place Trades Based On Bearish Abandoned Baby Pattern

Based on your trading style, you can decide to enter the market at the current market price (CMP), set a limit order (sell limit in this case), or a stop order (i.e., sell stop).

Suppose you want to enter the trade at the current market price. In that case, you can enter a short position at the open of the candlestick after the abandoned baby pattern is completed and set your stop loss above the high of the Doji candlestick. Your take profit can be set at a key support level or a distance equal to the size of the abandoned baby pattern.

To use a sell limit order to trade the Bearish Abandoned Baby, wait till you see a confirmation candle(s), i.e., the market forming lower lows. Set your limit order at a significant resistance point, put your stop loss a few pips above the resistance line, and set your take profit below the low of the current lowest low or at your desired level.

Using a stop order means the market is already trading down but has not reached your desired price. Set your stop order at that price and recognize a fundamental potential resistance level, usually a few pips away from your entry point, to put your stop loss. Your take profit can be set at the low where there is a likelihood of the market breaking it to trend further downward (i.e., a potential break-in market structure).

Risks And Limitations Of Using The Bearish Abandoned Baby As A Trading Signal

Like any candlestick pattern, the Bearish Abandoned Baby pattern has certain risks and limitations that traders should be aware of when using it as a trading signal. One such risk is the resemblance to another candlestick pattern called the evening star formation. Although both are bearish indicator patterns, they are slightly different in their formation and the psychology behind them.

Another limitation is the rarity of the pattern. The abandoned baby pattern is relatively rare and does not frequently appear on charts, which can limit its usefulness as a trading signal. As such, traders cannot always rely on its formation to identify potential bearish runs.

Also, the abandoned baby pattern can produce false signals, particularly in choppy or ranging markets. This can lead to unsuccessful trades if the market does not follow the expected trend. To mitigate this risk, traders should consider using additional technical indicators and fundamental analysis to confirm the pattern’s validity.

Although the bearish baby pattern is a bearish reversal pattern, the downtrend (sell) following its formation is usually short-term. For example, the trend typically lasts for less than 21 days before buyers gain momentum and push the market upward. So when trading this pattern, keep in mind that the bearish trend is short and plan your trades accordingly.

Conclusion

As a trader, you are always on the lookout for new and reliable trading signals to help you make informed decisions. No doubt, the Bearish Abandoned Baby signal is a potential powerful reversal pattern that you should look out for.

Although very rare, this pattern suggests a lack of commitment from buyers and a potential shift in market sentiment towards bearishness when it appears on the chart. If you are able to identify this pattern early on, it could provide a valuable opportunity to capitalize on a potential trend reversal.

However, it is essential to note that the Bearish Abandoned Baby pattern is not a standalone trading signal and should be used with other technical and fundamental analysis tools. As with any trading strategy, conducting thorough research and implementing risk management techniques is essential to ensure success.

So next time you are scanning the charts for potential trade setups, keep an eye out for the Bearish Abandoned Baby pattern. It may just be the edge you need to make profitable trades in the fast-paced world of financial markets.

Frequently Asked Questions (FAQ)

Let’s end the article with some FAQ about Bearish Abandoned Baby.

How many candles make up the Bearish Abandoned Baby pattern?

Three candlesticks. They are a long bullish candle, a Doji, and a long bearish candle.

How do I recognize a Bearish Abandoned Baby pattern?

To identify the bearish abandoned pattern, ensure there is a gap between the first and second candles and also the second and third candles. Lastly, the neighboring candles must not overlap.

What type of candlestick pattern is it?

It is a bearish reversal pattern. It suggests a potential trend reversal towards bearish sentiments.

Is the Bearish Abandoned Baby pattern reliable?

Yes, but like any other candlestick pattern, the Bearish Abandoned Baby pattern is not a standalone trading signal and should be used in conjunction with other analysis tools.

Are there any similar patterns to the Bearish Abandoned Baby pattern?

Yes, the Bearish Abandoned Baby pattern is similar to other reversal patterns, such as the bearish harami and the evening star.

What does the pattern tell traders?

The Bearish Abandoned Baby tells traders that there is a potential market reversal in the current uptrend.

Is the Bearish Abandoned Baby a bullish or bearish candlestick pattern?

As the name suggests, the Bearish Abandoned Baby is a bearish candlestick pattern.

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