Understanding the Abandoned Baby

What is the Abandoned Baby?

The Abandoned Baby is a three-candle pattern that signals a potential reversal in the market. It consists of a Doji candle that is isolated between a long candle with a large body and a subsequent candle that gaps away from the Doji. This pattern indicates strong indecision and can signal a reversal or a change in trend.

How is the Abandoned Baby Identified?

The Abandoned Baby pattern is identified by:

1. First Candle: A long-bodied candle, either bullish or bearish.
2. Second Candle: A Doji candle that gaps away from the first candle and has no overlap.
3. Third Candle: A long-bodied candle that gaps away from the Doji and moves in the opposite direction of the first candle.

When to Use the Abandoned Baby

The Abandoned Baby pattern is useful for:

• Reversal Signals: When the pattern appears at the end of an uptrend or downtrend, it may indicate a potential reversal.
• Confirmation: Look for confirmation from the third candle to validate the pattern.

Formula Example

To identify an Abandoned Baby:

1. Identify the First Candle: The first candle should have a long body. For a bullish Abandoned Baby, the close price should be significantly higher than the open price, and for a bearish Abandoned Baby, the close price should be significantly lower than the open price.
   • Bullish First Candle Condition: Close > Open and the body is relatively long compared to the shadows.
   • Bearish First Candle Condition: Open > Close and the body is relatively long compared to the shadows.
2. Verify the Doji: The Doji candle should have an open and close price that are nearly identical, and it must gap away from the body of the first candle. No overlap between the first candle and the Doji.
   • Doji Condition: Open ≈ Close and the gap should be significant.
3. Analyze the Third Candle: The third candle should gap away from the Doji and move in the opposite direction of the first candle.
   • Bullish Abandoned Baby Confirmation: Third candle opens above the Doji and closes higher, ideally forming a new high.
   • Bearish Abandoned Baby Confirmation: Third candle opens below the Doji and closes lower, ideally forming a new low.

For instance:

• First Candle (Bullish): Open Price = 100, Close Price = 110
• Doji: Open Price = 110, Close Price = 110
• Third Candle (Bearish): Open Price = 115, Close Price = 105

Parameters

The parameters for identifying the Abandoned Baby pattern include:

• Data: Defines the type of data to use for the pattern.

  • Value: ohlc
  • Description: The pattern uses Open, High, Low, and Close prices.

• Previous N Candles: Number of preceding candles to check.

  • Default Value: 1
  • Min Value: 1
  • Max Value: 300
  • Description: Checks for the Abandoned Baby pattern in the last N candles.

Conclusion

The Abandoned Baby candlestick pattern helps traders identify potential reversals in the market. It is crucial to use it alongside other technical indicators to confirm the signal and make more informed trading decisions.