Abandoned Baby Candlestick Patterns Explained: What They Are & How To Trade Them

 

What Is an Abandoned Baby Pattern?

An abandoned baby pattern is a 3-candlestick formation that may signal a reversal.  It is made up of a long candle moving in the direction of current trend, a doji that gaps, and another long candle that gaps and moves in the opposite direction of the first (and trend).

The abandoned baby candlestick pattern has both bullish and bearish variations.  It is also very similar to the star and doji star patterns.  For all of these patterns, the middle candle is essentially the apex of the potential reversal.

Of course, no candlestick pattern guarantees a particular outcome.  Instead, they offer clues as to what is going on in the market.

So the question is, what does an abandoned baby really tell you?

What Abandoned Baby Patterns Mean

Like many candlestick patterns, the name itself doesn’t reveal much.

And unlike some, English speakers do not use the Japanese name for it.  The term “abandoned baby” probably comes from how it looks.  The long candles are the parents, the doji is the baby, and the gaps signify abandonment.

In trading terms:

• During the first period, the price drove strongly in the same direction as the overall trend.
• The second period opened with a gap, after which neither the bulls nor the bears were able to maintain control.
• The third period opened with another gap then price drove strongly in the opposite direction of the first period and trend.

This sets the stage for reversal, as it appears the current trend may be nearing exhaustion.

How To Recognize Abandoned Baby Candlestick Patterns

Traders are attracted to patterns partly because they are easy to spot.

However, it’s also easy to see things on the charts that aren’t truly there (or anticipate events that never come to fruition).  That’s one of the reasons why waiting for confirmation is so important.

Technically, an abandoned baby pattern must:

• Begin with a long candle moving with trend
• End with a candle of similar size moving against trend
• Have a doji as the second candle
• Have a gap before and after the doji

In practicality though, many traders will make various exceptions.

• The first and third candles can be different lengths, as long as they are both long line candles and/or test important price levels.
• The second candle doesn’t necessarily have to be a doji, as long as it is a short line candle.
• The gaps can go, especially in markets where gaps are less common like cryptocurrency.
• There can be more than one doji (or short candle) between the first and final candlestick.

Depending on who you ask, any of these standards may be more or less important.  Moreover, some of these variations may be more properly classified as other reversal candlestick patterns, such as the star or doji star.

Remember, identifying the reversal itself is more important than labeling the formation.  That’s not to say these standards are completely unimportant (as we’ll touch on shortly).  It’s just to say that the implications are more important than the criteria.

In other words, you need to put it into context.

Where Abandoned Babies Fit in the Chart Narrative

The markets are often characterized as a battle between the bulls and the bears.

Abandoned baby patterns show that one side attempted to press their advantage on candle one, stalled on candle two, and finally surrendered all the momentum on candle three.

On the chart, it looks like a U-turn.

It might happen like this on a daily time frame:

After a strongly trending day, traders awoke the next day to a price gap.  The bulls and bears were equally excited by this, resulting in a busy but ultimately indecisive day.  On the third day, those who had been in control ran out of steam, leading to a gap in the other direction and continuation throughout the final day.

In the short-term, it amounts to a counterpunch.

The question traders need to ask themselves is, “Will this lead to a sustained reversal or was it just a hiccup in the greater trend?”

To answer that question, you’ll need more than just an understanding of Japanese candlesticks and candlestick patterns.  You’ll want to analyze both within the context of greater chart patterns as well as trend and price levels.  You’ll also want to make use of your own chart markup and indicators.

Analyze the history of your preferred asset(s) with respect to abandoned baby patterns and apply it to your own trading style.

Now, you can test (and/or stretch) the criteria we mentioned above to find the most tradeable opportunities.  For example, you may find that abandoned babies with gaps play out more reliably than those without.  Or, you may find the opposite.

Here is where the story in the charts begins to come into focus.

This is what we call technical analysis.

How To Trade Abandoned Baby Patterns

Reversal points are great places to enter or exit trades.

Abandoned baby patterns serve as easy-to-spot signs of potential reversal—and may even lead to longer-term tops or bottoms when found on higher time frames.

Generally, you can put more weight into multi-stick patterns than single candles.  They give you more information over a longer amount of time.  Still, it is considered unwise to trade based on candlestick patterns alone.  They rarely have extremely high hit rates by themselves.

You need additional points of confluence to shift the probabilities in your favor.

Some of the more important ones include:

• Volume – Reversals are often accompanied by elevated trading volume.  For abandoned babies, be on the lookout for it on the second and (especially) the third candles.
• Price Formations – Reversal patterns like the abandoned baby often form near important price levels or trend lines, leading to a bounce at support or rejection at resistance.
• Oscillator Shift – Oscillating indicators like the RSI or stochastics are commonly used to identify reversals by analyzing slope, percentile, and/or divergence.

The fewer such factors corroborating the reversal, the less confident you can be about it.

It would be difficult to form a comprehensive trading strategy around abandoned baby patterns.  There simply isn’t enough there to develop a strong edge.  Even with a great understanding of trading math, orders, psychology, risk management, options, and automation, you’d still have a hard time.

You’re much better off building your strategy around other tools then using reversal patterns as an additional point of confirmation.

Patterns like the abandoned baby are much better idea givers than trade makers.

Other Candlestick Pattern Types

The abandoned baby is but one of many candlestick patterns.

You’d be wise to get familiar with all of the other ones too.

• Breakaway
• Counterattack Lines
• Doji Star
• Engulfing
• Harami
• Harami Cross
• In Neck
• Kicking
• Ladder
• Last Engulfing
• Mat Hold
• Matching
• Meeting Lines
• On Neck
• Separating Lines
• Star
• Stomach
• Tasuki Gap
• Three Inside
• Three Methods
• Three Outside
• Tweezer
• Window

Sure, there are quite a few of them.  But don’t let that intimidate you.

It’s unnecessary to memorize all the names and criteria for every pattern.  What’s more important is to learn the principles of price action and technical analysis.

In fact, you’re free to forget all of the names and specifications as long as you can look at a group of candlesticks and understand what they are trying to tell you.

Takeaways

To review:

Abandoned babies are a type of candlestick pattern that signals a potential reversal.  While not a guarantee, their appearance may indicate that market conditions are changing.  Thus, they can help you find winning trades.

Of course, there are other candlestick patterns that you should learn about.  And even so, the ability to recognize patterns is not enough to trade successfully on its own.

Nonetheless, you’ve now added one more tool to your toolkit.

Have questions or more information to add?  Contribute to the conversation in the comments below!  Or, if you know someone who could benefit from this post, share it with them.  You can also check out our Candlestick Patterns Guide to improve your candlestick analysis skills.