Meaning & Strategies of Abandoned Baby Pattern

Understanding the Abandoned Pattern

Japanese candlestick patterns are distinctive and rare. The abandoned baby pattern is one example of such a formation. We have already discussed other candlestick patterns that traders recognize as indicating a trend reversal in previous articles. An abandoned baby, which looks like a morningstar but is more reliable, is another trend reversal pattern. We will be discussing an abandoned baby in this article - its characteristics, how to spot it, and how to interpret it.

The baby

A candlestick chart can only show an abandoned baby. It can be seen in either a downtrend or an uptrend, signalling a trend reversal. It looks like a Doji Star, cross or Doji Star, but it has no real-body, upper and lower shadows. A baby left behind has candles at its sides with prominent real-bodies in uptrend or downtrend. These are called parents. This signal is considered strong and should not be ignored. However, it is important to be able recognize it and react accordingly.

An abandoned baby pattern is made up of three candlesticks. It can also form in bullish or bearish trends. The following are signs that you have an abandoned baby.

Bullish abandoned child: It is found in the downtrend and indicates a bullish reversal. Black or red is the first candle to appear in a downtrend. The star below the close of the first candle is the next. The third candle is an upward candle, which opens above the Doji but closes within its body.

Bearish baby: In contrast, a bearish baby is seen in an uptrend. The trend's first candle is a bullish or green candle. Next is the Doji Star, which forms above the closing of a bullish candle and then a downward candle below it.

It is important to note the gaps between the candles, the Doji Star and the Doji Star. They shouldn't be in close proximity. It is not a morning star formation, and it is not an abandoned child.

Abandoning Baby

A trend reversal pattern is an abandoned baby. If it appears in a downtrend, it indicates that the market is experiencing a reversal and the end of the selling frenzy. It can also be seen in an uptrend. This indicates that buyers are leaving the market, and sellers are taking control. It is rare, but traders trust it to help them adjust their positions. This formation is more reliable than the other Doji formations, and it can be used to indicate a trend reversal. Each candle is distinct and doesn't overlap. The confirmation candle is placed over the first in morning and evening star formations.

An abandoned baby has the advantage of being a trend reversal pattern. You can trade immediately if you spot one within the trendline. You don't need to confirm abandon baby with other trading tools. You can match it with other tools, however, to be certain.

How do you interpret a bullish abandoned child? According to psychology, the formation indicates that there has been a sell-off or significant drop in the trend since the first candle. The formation of a Doji after the first candle indicates that there is a levelling off, with closing and opening prices being equal. The Doji indicates that buyers are trying to control the market and sellers are slowly losing their grip. The third candle confirms the uptrend, and is higher than the Doji.

You can also interpret an abandoned baby in an uptrend the same way. But you will interpret it differently.

Bullish Abandon Baby

You can trade in an abandoned child in many ways.

Entering market: A bullish abandoned baby means that there is a weakening downtrend. Therefore, traders take a long position once the third candle has formed. They place a stop limit order just above the third candle. This makes sense as the market will continue rising and it could then be used to buy.

Stop Loss: To prevent any unanticipated changes from causing losses, traders set a stop-loss limit below the Doji Star's down shadow. Some traders will place the stop-loss limit below the downward wick of third candle to reduce their risk exposure.

Profit target Because the trading strategy does not indicate a profit target traders will need to use other tools such as Fibonacci Retracement or moving oscillator to confirm the limit.

Conclusion

An abandoned baby is considered a strong structure because traders can set tight stop losses and identify resistance levels. Any deviation from this stop-loss limit indicates that the trend may be false. This is why traders are more likely to trust this formation than any other candlestick formations. If traders spot an abandoned baby pattern during an uptrend, they will enter a long position on the market. They would also enter a short position if the form is found in an uptrend. An abandoned pattern can be traded more than your normal trading capacity because it has a higher success rate than other patterns.