Introduction

The Abandoned Baby pattern is a rare but powerful candlestick formation that signals a potential reversal in the market. This intriguing pattern captures the essence of market psychology, reflecting a sudden shift in sentiment among traders. In this detailed guide, let's delve into the intricacies of the Abandoned Baby pattern, exploring its definition, various types, and strategic applications for savvy traders.

Definition of the Abandoned Baby Pattern

It is a three-candlestick reversal pattern that occurs at the end of an uptrend or downtrend. It indicates that the prevailing trend is losing momentum, and a new trend is about to emerge. The pattern has the following components:

• The first candle is a large bullish or bearish candle that shows the continuation of the existing trend. It has a long body and short or no shadows.
• The second candle is a doji that gaps away from the first candle. A doji is a candle with very small or no body and long shadows. It shows that the market is indecisive and that the buyers and sellers are balanced.
• The third candle shows that the market has changed its mind and that the traders oppose the trend. The gap between the second and third candles indicates a strong momentum and a confirmation of the reversal.

This pattern exhibits bullish or bearish characteristics, determined by the initial and third candle directions. A bullish abandoned baby pattern appears after a downtrend, indicating a potential bullish reversal. Conversely, a bearish abandoned baby pattern emerges following an uptrend, signaling a possible bearish reversal.

Psychology Behind the Abandoned Baby Pattern

• The first candle shows that the prevailing trend is still strong and that the traders are confident in the direction of the price movement.
• The second candle shows that the market is uncertain and that the traders are hesitating to continue the trend. The gap between the first and second candles indicates a sudden shift in sentiment and possible exhaustion of the trend.
• The third candle shows that the market has changed its mind and that the traders are now moving in the opposite direction of the trend. The gap between the second and third candles indicates a strong momentum and a confirmation of the reversal.

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Identification of the Abandoned Baby Pattern

The abandoned baby pattern is uncommon, but it can be very effective when it appears on a chart. To identify the pattern, you need to look for the following criteria:

• The pattern must have two gaps: one between the first and second candles and another between the second and third. The gaps should be visible and significant, not just a few pips or points. The gaps show a discontinuity in the price action, and the market sentiment has transformed.
• The first and third candles should be large and have the same colour: green or red. The second candle should be a doji, meaning it has very small or no body and long shadows. The colour of the doji does not matter as long as it differs from the first and third candles. The size and colour of the candles show a strong contrast and a reversal in the price movement.
• The pattern should occur at the end of a clear and established uptrend or downtrend. The trend should be evident and consistent, not choppy or sideways. The trend context shows that the pattern is a valid and reliable reversal signal, not a false or temporary one.

Conclusion

The abandoned baby pattern is a rare and reliable candlestick pattern that reverses the ongoing trend. It can be bearish or bullish based on the candle's context and direction. The pattern consists of three candles: the first is in the direction of the existing trend, the second is a doji that gaps away from the first one, and the third is in the opposite direction of the first one and gaps away from the second one. The pattern shows a sudden shift in sentiment and momentum as the market participants are caught off guard by the change in direction.

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