The bearish abandoned baby is a reversal signal that, while rare, is actively looked for by wise candlestick analysts. It is a signal both that the market is indecisive about its future and that a turnaround is about to happen.
The first day has a long white candlestick, which is a continuation of the strong bullish market that has been in effect for this market. The second day seems to be another continuation when it opens with a gap up from the first day’s close. However, market ambivalence becomes clear when that day closes with a Doji, which means that the opening and closing prices were nearly identical. The third day confirms the reversal that the Doji suggests, beginning below the ‘abandoned baby’ and continuing downward throughout the day, ending with a black candlestick.
The implications of the candlestick pattern are clear. The first day is merely a continuation, but the Doji completely negates this bullish signal. Dojis suggest indecision, and perhaps that the market in question is incapable of moving any further upward. The buyers and sellers are not really certain of the direction of the market, and neither dominates the day. The third day’s black candlestick shows that the bears have taken over the market.
Your Next Move
When you see the bearish abandoned baby formation in a market you are following, it is a good time to maximize profit by selling. The Doji of the second day suggests that the price has reached it’s high and simply cannot move further. The black candlestick on the third day only underscores this suggestion. However, if you are uncertain about the future of the market, it is always good to wait for confirmation on the fourth trading day.
Confirmation
Confirmation in the case of the bearish abandoned baby could be any sort of downward movement. Whether there is a low opening, a low close, or a white candlestick of any kind, a bearish day following this formation strongly suggests that the reversal has taken hold and will be driving prices ever lower.
An Important Note
It is absolutely imperative that the second day’s Doji be far above the candlestick bodies and the wicks of the first and third days. This Doji is the baby, and its distance from the two other candlesticks is what makes it abandoned. Because this formation requires very specific market forces, it is both very rare and very significant.
Similar Patterns
This pattern is very similar to other Doji patterns, and like these other patterns the bearish abandoned baby suggests that a reversal is in the near future.
The bearish abandoned baby is an easy pattern to recognize because the Doji looks very out of place in the bullish market. However, it is important to see it and act on it, especially if it is confirmed by further downward movement on the fourth trading day. Recognizing the bearish abandoned baby candlestick pattern as a reversal signal will allow you to maximize profits, or at least to minimize losses.
