Here’s a simple guide on how to trade the abandoned baby candlestick pattern. It covers both the bullish and bearish abandoned baby formations.
The goal is to ensure you know what action to take once you spot this reversal pattern.
Because once you do, you’ll be one step closer to trading profitably as a crypto or forex trader.
The crypto futures market, for instance, requires vast knowledge and experience in trading Japanese candlesticks like a pro.
This means the more patterns you master, the higher your winning rate.
Therefore, carefully read and understand this guide on how to trade the abandoned baby candlestick pattern.
Keep in mind that this candle pattern occurs more frequently on forex and stock charts than crypto charts.
What is the Meaning of Abandoned Baby?
An abandoned baby in trading means a small candlestick that gaps away from the candle created before and after it.
The gap separates this candle from the pattern on both its sides (the parents).
Hence, the term abandoned baby.
Think of it as a candle that’s all alone. Its wick and real body do not intersect with the candle on its left and right.
So that’s a very powerful reversal pattern.
It’s also significant because the formation is a triple candlestick pattern!
The more the number of candles that combine to form a pattern, the stronger it is.
Read Also: How to Trade Piercing Pattern Candlestick
Let’s forge on.
At first, this pattern looks like a strong bullish signal (in an uptrend). That’s because price gaped away from the preceding candle.
A problem arises when the third candle gaps below the first and second candles.
What does that say?
The strong bullish signal is now a strong bearish signal.
That’s because the bulls were unable to sustain new highs (or hold price above a gap).
What are Gaps?
Gaps are also called windows.
These are regions of no trading activity.
Gaps are believed to be very strong support and resistance zones.
As such, when a candle ‘successfully’ closes below or above the window, the trend could likely change.
Here’s a EUR/USD two weeks chart showing a rising window as support.
The uptrend was in full swing as price traded above the window. The trend also resumed as price ‘failed’ to close below the window.
Here’s a dollar index (DXY) 1-day chart showing a falling window. Price entered a downtrend after a gap formed strong resistance.
In these two examples, these are just regular gaps yet their effect was significant.
How much more when price trades above a gap (continuation pattern) only to fall below it? A trend that should’ve been continued gets reversed!
It, therefore, follows that an abandoned baby pattern in an uptrend is a bearish signal.
Do you understand this concept?
If you do, relate it with an abandoned baby in a downtrend.
Let’s do it together.
Start by listing out the things you’ll look out for to spot this pattern in a downtrend.
- Confirm price is in a downtrend.
- Look for a candle that gaps away from the real body and wick of the preceding candle.
- Check if the next candle closes above the gap.
And that’s all there is to it.
Physical Characteristics of Abandoned Baby
A quick recap of the characteristics of abandoned babies include:
- The middle candle gaps away from the candles on its left and right.
- Middle candle does not intersect with the body and shadow of candles below or above the gap.
- The gap acts as strong resistance to price in an uptrend and strong support in a downtrend.
- There may be variations of this pattern. However, the real bodies of the pattern must not intersect if the wicks intersect.
Here are the physical characteristics of each candle that make up an abandoned baby pattern.
In an uptrend:
- The first candle is a green momentum candle.
- The second candle can either be a doji or spinning top that gaps away from the green candle.
- Finally, the third candle is a red momentum candle. It might not be as large as the first candle but it’s needful that it penetrates deeply into the first candle.
In a downtrend:
- The first candle is a red momentum candle.
- The second candle can either be a doji or a spinning top that gaps away from the red candle.
- The third candle is a green momentum candle that closes above the gap. The size of this third candle is also important. It needs to be large hinting that buyers are more aggressive than sellers.
What is an Abandoned Baby Bullish?
A bullish abandoned baby candlestick pattern is formed in a downtrend.
Here, price gaps below the previous candle giving bears the confidence prices will continue falling.
The gap, in this case, acts as a strong resistance.
Recall that the candle before the gap is a large red candle which hints at increasing selling pressure.
But the next candle which is a doji or spinning top shows how selling pressure has waned.
Specifically, the doji as an indecision candle indicates the bears and bulls have equal strength.
That shouldn’t be the case since it’s a downtrend. Moreover, the candle before the doji is a very bearish one.
The gap should have also boosted the bears’ confidence to keep shorting at lower prices but it didn’t.
On the next candle, price closes above the gap.
What this does is trigger buy stop orders from those who had gone short. That’s because their stop loss is placed close to the resistance of the gap.
It’s the same way buy stop orders for those looking to long are automatically triggered once price trades above the gap.
A sharp increase in buy orders increases bullish momentum. It gives price a better chance of trading in the new direction.
And even if the gap is retested, those who had gone short would look to break even. Whereas those who had gone long would add to existing positions.
There’s also the class of traders who hadn’t taken a position. They’d probably seize the opportunity to do so.
What is an Abandoned Baby Bearish?
A bearish abandoned baby candlestick pattern is formed in an uptrend. It indicates top prices have been hit.
This pattern is quite misleading at first since price gaps away from the preceding candle.
Bulls would obviously take this as a sign that the market will continue making new highs.
That’s because there’s a textbook concept that price will move at least the size it traded before the gap was formed.
But in this case, it doesn’t pan out that way.
The next candle closes below the gap thereby leaving those who had gone long, stranded and in pain.
What do you think this set of traders will do?
If they’re smart (which I believe they are), they’ll try to cut their losses on time.
Let’s not forget those who had gone long already. These ones may decide to take profit since the gap has created a strong resistance.
Bears, on the other hand, who may have been closely waiting for an opportunity to go short, now have a grand chance.
The action of all these traders does one thing. It pushes price further away from the gap.
Now great job trying to understand these concepts!
The next step is to learn how to trade the abandoned baby pattern correctly.
Read on as it is unraveled.
How Do You Trade an Abandoned Baby Candlestick Pattern?
Given that this is a rare pattern, it’s important to make the most of it whenever you spot it.
Therefore, here are simple steps on how to trade an abandoned baby pattern.
- Spot the trend.
- Look out for gaps.
- Check the size of the candle below the gap.
- Look out for a candle that closes above the gap.
- Take the trade.
Let’s break each element down.
1. Spot the Trend:
Spotting the trend is the first thing to do if you’re bent on finding an abandoned baby pattern.
An uptrend has higher highs and higher lows.
Whereas a downtrend features lower highs and lower lows.
The trend depends on whether you’re scalping, swing trading, or investing.
Scalpers, for instance, can use timeframes between M5 and M30. M30 tells you the short-term trend while M5 gives you entry and exit points.
Swing traders can resort to timeframes between M30 and H4. H4 can be used to spot the medium-term trend and M30 (consider M15 too) for entries and exits.
Investors’ timeframe is between D1 and WK 1. The weekly timeframe tells you the trend, while D1 can be used for entries and exits.
What you’ll be doing here is basically a multiple timeframe analysis.
Proceed to the next step once you’re armed with the knowledge of the prevailing trend based on your trading strategy.
2. Look Out for Gaps:
Gaps are just an empty space.
Pay close attention to candles whose real body and shadow (not necessarily) do not overlap.
An easier way to spot this pattern is to check for price extremes or an exhaustion gap.
An exhaustion gap is formed after an extensive rally to highs to decline to lows.
The abandoned baby pattern is often formed in this type of gap.
3. Check the Size of the Candle After the Gap:
The size of the candle formed above or below the gap is extremely important.
We need it to have a small or nonexistent real body as an indication of confusion between buyers and sellers.
The more confused they are, the better.
That means if you’re trying to find a bearish abandoned baby in an uptrend, the gap-up candle should have a small body.
The same applies to the pattern of this kind in a downtrend.
4. Look Out for a Candle That Closes the Gap:
You’ve successfully spotted the requirements for an abandoned baby but here’s one more step to consider.
In an uptrend, look out for a candle that closes below the gap. It’s ideal if the candle is a large red bar.
And in a downtrend, pay close attention to a large green bar that closes above the gap.
5. Make Entries:
Make an entry once all of these criteria have been met.
What’s more, place your stop loss above the gap in an uptrend or below the gap in a downtrend.
That’s because the gap is strong support or resistance. Thus if a candle closes below it, there’s a high chance price will continue in that direction.
Your profit target could be a support or resistance on a moving average such as the EMA 8 or EMA 50. A trendline could also prove useful.
Abandoned Baby Candlestick Example
Here’s a DXY 12-hour chart showing an example of the abandoned baby candlestick pattern.
It’s a variation of the ideal formation since the baby candle did not gap away from the shadow of the first parent.
Although this is a higher timeframe, the parent candle would represent a short-term uptrend on lower timeframes. The third candle’s close below the gap would be your signal to go short.
Abandoned Baby vs Star Comparison
A comparison between bullish abandoned baby vs. morning star is needful. The same goes for a bearish abandoned baby vs. evening star.
A trader can easily mistake one bullish or bearish pattern for the other. For example, a morning star mistook for a bullish abandoned baby.
So here are the similarities and differences between these Japanese candlestick patterns.
- A bullish abandoned baby and morning star are formed in downtrends. While a bearish abandoned baby and evening star are formed in uptrends.
- These patterns rely on three candles to complete their formation. Hence, entry is made on the third candle’s close.
- The first and third candles in these patterns have different colors. For instance, there’s a large red momentum candle, doji or spinning top, and large green candle in a downtrend.
- An abandoned baby requires that all three candles do not overlap. Hence, a gap must be formed. A morning and evening star have the same requirement but it isn’t crafted on stone. There can be variations.
- A morning or evening star requires that the third candle deeply penetrates (at least 50%) into the first candle. Nonetheless, there can be variations.
Here’s a EUR/USD 1-hour chart of a morning star formation. It’s a variation of the pattern since the second and third candles overlap.
Here’s a EUR/USD 1-hour chart of an evening star. All its candles overlap, hence there is no gap.
Despite that, it’s a bearish formation since price showed stalled bullish momentum via the small real body (star).
It also created a new low after the hanging man to yield the bearish engulfing formation.
Other Mother and Child Candle Patterns
There’s a wide range of mother and child patterns in crypto.
You’ve probably come across one or more of these. One of the most popular mother and child patterns is the harami.
There’s the bullish and bearish harami.
The word harami is a Japanese term for pregnant.
As such, this candle formation has a large mother candle followed by a small baby candle.
In the ideal formation, both candles would be of opposite colors.
Nonetheless, there are cases where they are the same color.
Hence, you may find a green-green harami or a red-red harami.
Frequently Asked Questions
Answers to some of the most asked questions on candlesticks have been provided below.
1. What is a Mother Candle?
A mother candle in trading is a large bar that precedes one or more bars (inside bars).
This candle is often 75% larger than the candles that come after it.
Also, the mother candle and its baby or babies are combined to form one pattern.
It’s important that the real body of the inside bar(s) does not extend above or below the high and low of the mother candle.
2. Difference Between Abandoned Baby and Tasuki Gap?
A Tasuki gap can almost be compared to an abandoned baby pattern.
The reason is that the second candle gaps away from the first bar.
The gapping candle may be of the same size and color as the preceding candle before the gap. This hints prior momentum has been sustained.
Also, the third candle does not close the gap between the first and second candles. It may retest the gap and find support or resistance.
As such, this is a continuation pattern instead of a reversal pattern.
3. What is the Best Candlestick Pattern to Trade?
There’s no specific great candle to trade.
However, the higher the number of candles that combine to form a pattern, the more powerful its bullish or bearish meaning.
That’s why the abandoned baby pattern is one of the best candlestick patterns.
It’s worth noting that these triple candlesticks are rare.
Hence, they may not sprout out on your chart often like hammers and doji.
Doji are also one of the most powerful candlesticks.
They may be skeletal in nature but can reverse a trend or retard its growth.
4. Is Candlestick Trading Profitable?
Yes, candlestick pattern trading is profitable. It’s all about price action trading.
Simply understand the formations of these patterns and learn more patterns by the day.
The vaster your knowledge of candle patterns, the better you trade.
Better trades result in more profit than losses.
5. When Should You Buy Cryptos Based on Candlestick?
You should buy cryptos based on candlestick when there is a bullish signal.
A bullish abandoned baby, for instance, is the signal you need to buy the coin of your choice.
It could be Bitcoin (BTC) or an altcoin such as Ethereum (ETH), Binance Coin (BNB), Shiba (Shib), Polygon (Matic), or Solana (Sol).
I’ll like to point out that the overall market trend where you read the bullish signal is important.
That’s because it’s more profitable to find such indications in an uptrend or bull market.
You now know the best way to trade an abandoned baby candlestick pattern.
How will you put this knowledge to good use? I’ll tell you.
Demo trade until you master it.
You can also use a small amount on a live account to improve your performance.
Consistent practice is how you become better.
Practice will enable you to spot different variants of the abandoned baby pattern. Hence, you can be a more conservative trader than an aggressive one.
Now go out there and do it.
The comment section is where you can ask me questions pertaining to this guide.
Let me know if you have challenges understanding this topic or trying out the pattern.