What Is a Bullish Abandoned Baby?
Let me explain the bullish abandoned baby to you—it's a candlestick pattern traders use to spot a reversal in a downtrend. You see it forming in a downtrend over three price bars. It starts with a large down candle, then a doji that gaps below that first one, and finally a candle that opens higher than the doji and pushes aggressively upward.
What you're looking at here is an expectation that the price will keep climbing because the pattern indicates that selling pressure has worn out, at least for now. Compare this to the bearish abandoned baby, which does the opposite by signaling the end of an uptrend.
Key Takeaways
This is a three-bar pattern that shows up after a downtrend. It features a strong down candle, followed by a doji that gaps down, and then a strong bullish candle that gaps up. Essentially, it points to the downtrend possibly ending and prices starting to head higher. I should note that some traders are flexible with variations—like having more than one doji or skipping some gaps—but the core idea of the pattern needs to hold.
Understanding the Bullish Abandoned Baby
As a trader, you watch for this pattern to signal the end of a downtrend. It's not common because the price action has to fit specific rules. The first bar is a big down candlestick in an established downtrend. The second is a doji—where open and close are almost the same—that gaps below the first bar's close. The third is a large white candle opening above the second bar.
The psychology here is straightforward: prices have been dropping hard, with another big sell-off in that first candle. Then the doji appears, showing selling is flattening out since open and close are so close. Dojis often mean indecision, and in this setup, it suggests sellers are losing steam while buyers emerge. After the doji—or maybe a few—the next candle gaps higher and advances strongly, meaning buyers are in charge and selling is temporarily done.
You can hunt for this pattern manually or use software to scan for it when trading.
Special Considerations
You might allow some tweaks to the pattern. For instance, the doji might not gap below the first candle's close but open near it and stay put. Or there could be two or three dojis before the upside move. If you're okay with that, it's fine as long as the pattern shows a drop, then leveling off, and a sharp rise.
Trading the Bullish Abandoned Baby
There are various ways to trade this pattern, but here's a general approach. For entry, you could buy on a break above the third bar's high using a stop-limit order, expecting the price to keep rising. For a stop-loss, place it below the doji's lower shadow to avoid early exits, or below the third bar's low if you want less risk—remember, volatility spikes during reversals, so choose carefully.
The pattern doesn't come with a built-in profit target, so you'll need another method to lock in gains. You might use a Fibonacci retracement, like targeting 50% of the prior downtrend. Or set a fixed risk/reward, say aiming for $1,000 or $1,500 profit if risking $500. Technical indicators or exiting below a moving average are other options.
Example of a Bullish Abandoned Baby
This pattern is rare due to its strict setup, but relaxing the rules a bit can reveal more instances with solid results. Take Macy's Inc.—after price drops, it formed variations of the bullish abandoned baby at bottoms, leading to strong up moves.
In one case, it's a slight variation with no doji gap and two dojis, but it still captures the shift: a hard drop, indecision, then a surge. Another is more traditional but with two dojis, and prices rose sharply after. A third didn't gap the doji but moved higher post-doji, starting an uptrend.
Similar Patterns
The bullish and bearish abandoned babies resemble evening star and morning star patterns. The key difference is the abandoned baby's doji with gaps on both sides, making it rarer. Those star patterns don't need a doji or gaps. The term 'doji' comes from Japanese rice traders, popularized by Steve Nison in 1991, though it's centuries old. It's also like an island reversal on bar charts, but with just one candle.
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