The Abandoned Baby pattern is a triple candlestick reversal pattern that can appear in a uptrend, where it becomes an Abandoned Baby Top with bearish implications, or it can appear in a downtrend where it becomes an Abandoned Baby Bottom with bullish implications. The Abandoned Baby Top and Abandoned Baby Bottom are similar to the Evening Star and Morning Star, respectively, with the exception being that there must be a gap or a window between the middle candlestick that forms the star and the other candlesticks on either side of it in the formation; and the star must be a small Doji.
The Abandoned Baby Top
The Abandoned Baby Top is a major bearish trend reversal pattern that must appear in an uptrend. It consists of three candlesticks, with the middle candlestick being a small Doji that gaps away from the first candlestick. The first candlestick in the Abandoned Baby Top must be supportive of the uptrend and must therefore be light in color and have a relatively large real body. The candlestick that follows this relatively large, light colored candlestick must be a small Doji that gaps away from the first candlestick leaving a clear window between the upper shadow of the previous, large candlestick and the lower shadow of the Doji. In other words, the Doji cannot form within the upper shadow of the previous candlestick but must gap away from it instead. There must also be a gap or a window between the Doji and the candlestick that follows the Doji. This is also the last candlestick in the pattern.
Understanding the Abandoned Baby Top
The Doji that appears in the Abandoned Baby Top pattern is the first indication of weakness in the current uptrend when the forces of the bulls and the bears have become more balanced and neither the bullish buyers nor the bearish sellers were able to move the price significantly in their favor. This weakness in the current trend, and the momentary balance of the market forces is quickly tipped in the favor of the bearish sellers on the third candlestick, which moves against the uptrend and is therefore a dark candlestick that closes well into the body of the first candlestick. The bears have taken control!
Trading the Abandoned Baby Top
The Abandoned Baby Top forewarns of a reversal in the uptrend, which means a bearish downtrend should be anticipated. This calls for short selling. A break below the last candlestick in the pattern represents an opportunity to short the market. A protective stop order should be placed at the top of the Doji in the middle of the candlestick formation. This candlestick formation does not have a profit target but Fibonacci retracements or the appearance of a bullish candlestick formation can be used to exit the trade and take profit.
The Abandoned Baby Bottom
The Abandoned Baby Bottom is the bullish counterpart of the Abandoned Baby Top that must appear in a downtrend. The first candlestick in the Abandoned Baby Bottom pattern must be in the direction of the downtrend and must therefore be black or dark in color. It must also have a large real body relative to the candlesticks that preceded it. This bearish candlestick is followed by the Doji that gaps away from the first candlestick leaving a window between the lower shadow of the first candlestick in the pattern, and the upper shadow of the Doji. There must also be a gap or a window between the Doji and the third candlestick in the formation.
Understanding the Abandoned Baby Bottom
As with the Abandoned Baby Top, the Doji is the first indication of weakness in the current downtrend. It represents a period of indecision in the market with the price not moving significantly in either direction. This weakness is confirmed by the third candlestick which must move against the downtrend and, hence, must be a light in color and must close well into the body of the first candlestick. Here the bulls have taken control!
Trading the Abandoned Baby Bottom
The Abandoned Baby Bottom marks the end of a bearish downtrend and a bullish uptrend should be anticipated. This means preparing to place buy orders. Place a long buy order just above the last candlestick in theAbandoned Baby Bottom pattern with a protective stop order placed just below the Doji in the middle of this candlestick formation. As with the Abandoned Baby Top, the Abandoned Baby Bottom does not have a profit target but Fibonacci retracements or the appearance of a bearish candlestick formation can be used to exit the trade and take profit.