What Does the Market's Bullish Abandoned Baby Tell Us?

A bullish abandoned baby is a bullish reversal pattern that develops at the bottom of a downtrend and signifies a trend reversal. The bullish abandoned baby is a three-candlestick pattern with a bearish first candle and a gap to the downward second. The second candle closes with a gap down and becomes a doji, while the third closes with a gap up and becomes a bullish candle.

One of the best things about the abandoned baby pattern is that you may trade it straight away if you see it on the chart since it is typically quite trustworthy.

How to recognise a Bullish Abandoned Baby

For a candlestick pattern to be called a bullish abandoned baby, it must meet the following criteria:

• The first candle is long and bearish and continues the downtrend
• The second candle is Doji gapping down from the first candle
• The third candle is bullish and gaps up from the second candle
• It’s important that the real bodies of the three candlesticks don’t overlap from bar 1 to 2 and from bar 2 to 3

What Does the Bullish Abandoned Baby Tell Us About the Market?

Because candlestick patterns are depictions of market data, they provide a clear picture of market movements. This also means they provide a wealth of information on how buyers and sellers engaged at any particular time.

Trying to figure out why a price went in a particular direction is a terrific approach to learn more about the market and how it works. And while knowing exactly what happened is difficult or impossible, it isn't the point.

The most essential thing is to start conducting your own research. Soon enough, you'll find some fascinating discoveries that might lead to the development of a future trading technique!

What may have occurred if the market had abandoned a bullish baby?

Following a bearish trend, most market players are pessimistic and believe the market will continue to decline. As a result, there is further selling pressure, and the market falls significantly.

The bearish market attitude continues throughout the next trading day, resulting in a large negative gap. Sellers, on the other hand, are fatigued after making such strong negative swings. The buying and selling pressures are equal for the rest of the candle, resulting in a doji.

Because the market is reluctant and oversold, buying pressure rises on the expectation of a trend reversal. As a result, the market gaps up over the previous doji's peak.

More market participants join in after finding the bullish gap in the hopes of enjoying the benefits of catching a new trend early. As a result, the final candle is a tremendous winner!

                               

How to Use the Bullish Abandoned Baby in Trading

While candlestick patterns are thought to give reliable entry indications, the majority of skilled traders disagree. You must ensure the following in order for the bullish abandoned baby to work:

Use filters that remove a lot of the false signals

  Invest in a market and period where the pattern is profitable. Some traders feel that trading is just a question of understanding and using patterns seen online. Nobody has taught them that each market and period has its own unique characteristics. As a result, a pattern will never work on all markets or timeframes, and even when it does, you'll probably want to use a filter to boost the signal.

Now we'll show you a number of effective approaches that we utilize in our own trading strategies and that we think will be quite useful to anyone looking to incorporate the pattern into their trading!

Seasonality

Seasonal or time-based patterns exist in many markets. In layman's terms, it suggests that particular markets are more bullish or bearish at certain periods.

You might include this information into your market study if you know when these times occur. If you see a bullish abandoned baby at a period when the market is often bullish, you can be a little more certain that the patter is worth acting on.

In contrast, if you notice the pattern at a period when the market is typically more bearish, you should exercise caution.

So, where should you seek for such tendencies? You might go about it in a variety of ways, but the following are the ones we utilize the most:

Is there any day of the week that is more bullish or bearish than others?

Day of the month- We prefer to break the month up into two or three sections and assess performance on each. You should avoid selecting certain days of the month because this will result in curve fitting.

When trading intraday trading methods, it's possible that the strategy will only work for the first or half of the trading session!

Volume

The volume reveals a lot about the market's belief. The higher the volume, the more certain we may be that the move we just saw was supported by a majority of market participants. And if that's the case, it'll almost surely improve the pattern's accuracy.

There are a variety of ways to use volume, and here are a few of our favorites:

Require that today's volume be more or lesser than the prior bar's.

The volume moving average is higher than the volume.

The volume is the x-bars back with the highest volume.

All of the above are broad filters, but if we examine closely at the bullish abandoned baby pattern, we may be able to find criteria that are tailored to the pattern.

One such example is requiring that the doji, which is the pattern's second candle, be generated with significantly larger volume than the previous and succeeding bars. This might indicate a so-called volume blowoff, which occurs when a market has a trend reversal.