Bearish Abandoned Baby Candlestick Pattern

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  • 20 Dec 2023
Bearish Abandoned Baby Candlestick Pattern

Key Highlights

  • A rare pattern that has an extremely good record of predicting a bearish short-term downtrend is the abandoned baby.
  • The middle day, which should have a gap in front of it and follow it and which should end the session with no change in prices, is the crucial element of the bearish abandoned baby.
  • A bullish variation of this pattern is the abandoned baby, which also occurs exceptionally rarely and has a good track record in predicting reversals towards upward trends.

A bearish abandoned baby candlestick pattern consists of three consecutive candles, one with rising prices, the other with stable prices, and the third with falling prices. It is known to indicate a short reversal of the currently upward-trended price, at least temporarily.

This pattern is probably one of the very rare candlesticks to appear on a price chart, but it has a good track record for predicting future downward trends. Over the past 20 years, it's appeared about 50 times on S&P 500 stocks. But in the short term, the security has performed bearishly every time it has surfaced. The bullish abandoned baby is a rare version of the bearish abandoned baby that exhibits strong bearish reversal indicators.

A bearish abandoned baby pattern is particularly noticeable when a candle with a Doji-like pattern follows a gap between its lowest price and the previous candlestick's price. In fact, it is intended that the previous candle be a tall glass vessel with little shadows. The Doji will be replaced with a gap from the lowest to the highest price of the next candle. A tall red candlestick with short wicks was created as a result.

Traders and analysts sometimes utilize the bearish abandoned baby candlestick as a signal to sell assets and quit a long position since it indicates a reversal of the downward trend. Historically, for the next 20 days, the security price trended down about 65 % when the bearish abandoned baby candlestick pattern was formed. While the S&P 500 Index concludes with a positive value, the security yields a median return of -3.0%.

It can be difficult to find rare candlesticks, such as the pattern of an abandoned bearish candlestick. Not only is this one uncommon, but so is its opposite, the bullish abandoned candlestick pattern. A bearish abandoned pattern can be identified by three key traits that make up the pattern, as mentioned below.

  1. The first is the prevailing trend.
  2. The other is an appropriate sequence of candles.
  3. Three are the price gaps that exist.

To identify a bearish abandoned baby pattern, go ahead with the following pointers.

  1. A large white or green candlestick in an upward trend.
  2. There must be a Doji after the white candle, which gapes over the closing price of the previous candle.
  3. It must be a red or black candlestick that opens below the preceding Doji as the last candle.

The gaps need to be between the first and second candles. The important candlesticks that assist in the formation of an abandoned baby are as follows.

1. White Candlestick A white candlestick is formed when a security's closing price exceeds its opening price. In the software settings, a white candlestick can also be seen as a green candle.

2. Red candlestick When the price falls below the opening price, a red candlestick forms.

3. Doji If the stock has an almost identical opening and closing price, a Doji candlestick is formed.

Conclusion

A specialized candlestick pattern called a bearish abandoned baby is made up of three candles, one with increasing prices, one with holding prices, and a third with decreasing prices. Technical analysts are expecting that the pattern will signal, in a currently rising price trend, at least a short-term reversal. Bearish performance in the short term usually appears after the signal.

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