Bullish Abandoned Baby Candlestick Pattern: Technical analysis is a technique for projecting future price movements based on historical market data, with a particular emphasis on price and volume. Candlestick patterns are distinctive visual representations of price action over a specific time period.

These patterns, formed by open, high, low, and close prices, give insights into market sentiment and potential trend reversals or continuations. Candlestick patterns assist traders in making informed decisions about buying and selling stocks by providing valuable information about market dynamics and potential trading opportunities. In this article, we will look at one such candlestick pattern: the bullish abandoned baby candlestick pattern.

Bullish Abandoned Baby Candlestick Pattern – Definition

The bullish abandoned baby candlestick pattern is a three-candlestick pattern which indicates a bullish reversal. This three-candlestick pattern is similar to the morning doji star candlestick pattern. This pattern is preferred to appear after a downtrend as the probability of the bullish reversal indication derived by the formation of this pattern will have a higher probability of succeeding.

This three-candlestick formation consists of a long-bodied red candle followed by a doji candle which is then followed by a long-bodied green candle.

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Bullish Abandoned Baby Candlestick Pattern – Formation

A few conditions need to be fulfilled for a three-candlestick pattern to be called a bullish abandoned baby candlestick pattern and they are as follows:

  • The first candle must be a long-bodied bearish candle(red candle) along the downtrend.
  • The second candle must be a doji that opens with a gap down. Here, the wick of the doji candle should be below the lower wick of the previous candle. This means that the high price of the doji candle must be lower than the low price of the previous candle.
  • The third candle must be a long-bodied bullish candle that opens with a gap up. Here, the low price of the green candle must be higher than the high price of the previous doji candle.

Understanding the Bullish Abandoned Baby Candlestick Pattern

The bullish abandoned baby candlestick pattern typically indicates a shift in market sentiment and the possible conclusion of the price decline. The first candle is red since it is part of the downtrend, therefore the selling pressure is larger, causing the price to drop.

The next candle opens with a gap down which is an attempt by the sellers to push the price significantly lower. Here, the price ends up making a doji formation which indicates an exhaustion of the sellers and an indecision in the market.

The third candle is green with a gap up open, indicating that buying pressure has overrun the selling pressure thus indicating a change in the market sentiment. Based on the formation of this pattern and confirmation from other indicators, traders can choose to take a long position in the security.

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Bullish Abandoned Baby Candlestick Pattern – Trading Strategy

Traders who wish to trade based on this pattern should ensure that the trend before its formation needs to be a downtrend. Once that is confirmed, the following are the guidelines for taking a trade:

  • ENTRY: When the price of the stock starts trading above the close price of the third candle of the Bullish Abandoned Baby pattern, traders can take a long position.
  • TARGET: Traders can exit the trade when the price of the stock reaches near the immediate resistance zone. Once this level is reached, they can also book partial profits in the trade and hold on to the remaining position until the next resistance level.
  • STOP LOSS: Traders can place the stop loss near the low price of the bullish abandoned baby candlestick pattern.

Bullish Abandoned Baby Candlestick Pattern – Example

In the above one-day chart of NIFTY 50 INDEX, we can observe the formation of this pattern at the bottom of a small retracement. As discussed in this article, the price saw an upward movement after the formation of this pattern. Based on the formation of this pattern derivatives traders could have taken a trade accordingly.

Bullish Abandoned Baby Vs Morning Doji Star Candlestick Pattern

The Morning Doji Star forms with three candles: a large bearish candle, followed by a doji candle, and finally a large bullish candle. Here, the high of the doji candle will be within the range of the other two candles in the pattern.

While the bullish abandoned baby shares similar features to that of a Morning doji star pattern, the high of the doji candle in this pattern is completely separated from the lows of the other two candles.

While both patterns suggest a bullish reversal, the bullish abandoned baby pattern has a higher probability of success than the morning doji star pattern.

Bullish Abandoned Baby Candlestick Pattern – Key Features

  • The first candle is a long-bodied red candle along the downtrend.
  • The second candle is a doji that opens with a gap down.
  • The third candle is a long-bodies green candle that opens with a gap up.
  • The highs of the doji candle in this pattern are completely separated from the lows of the other two candles of the pattern
  • The formation of this pattern indicates a bullish reversal.

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Conclusion

In this article on Bullish Abandoned Baby Candlestick Pattern, we discussed a three-candlestick pattern used to derive a bullish reversal indication called the bullish abandoned baby candlestick pattern. We understood how it is formed and how market participants can interpret and utilize it.

We also discussed how this pattern is different from the morning star and morning doji star candlestick patterns. It is important to place proper stop loss if traders are taking a trade based on technical analysis as there is always a chance of the market moving against the analysis.

Written by Praneeth Kadagi

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