What is a bullish abandoned baby (short definition)
– A bullish abandoned baby is a three-candle candlestick reversal pattern that can appear at the bottom of a downtrend. It consists of: (1) a long bearish candle, (2) a doji (a candle whose open and close are virtually equal) that gaps lower away from the first candle, and (3) a strong bullish candle that gaps up from the doji and closes well into the prior range. The pattern signals that selling pressure may have run out and buyers are stepping in.
Why it matters (intuition)
– The sequence shows a sharp sell-off, then indecision (the doji), then a decisive buying surge. The opposing gaps isolate the doji — visually suggesting a short-lived exhaustion/turning point rather than ordinary consolidation. Because a true abandoned-baby requires gaps and a doji, it is uncommon.
Key definitions
– Candlestick: a price bar showing open, high, low, and close for a time period.
– Doji: a candlestick where the open and close are effectively the same; indicates indecision.
– Gap: when a candle’s open is higher or lower than the previous candle’s high or low, leaving a price “gap” between them.
– Downtrend: a series of lower highs and lower lows preceding the pattern.
Checklist for identifying a bullish abandoned baby
– Precondition: the market is in a clear downtrend (lower highs/lows).
– First candle: a large bearish (down) candle that extends the down move.
– Second candle: a doji that gaps below the close/low of the first candle (or at least below its range in the strict form).
– Third candle: a bullish candle that opens above the doji and closes substantially higher, ideally with increased volume.
– Gaps: gaps on both sides of the doji (strict version). Some traders accept small deviations (e.g., doji opens near prior close or multiple dojis).
– Confirming factors (optional but helpful): rising volume on the third candle, price clearing a nearby resistance or the high of the third candle, bullish momentum indicators turning positive.
Trading considerations and common approaches (no recommendations, only methods)
– Entry triggers:
– Conservative: enter after price closes above the high of the third (bullish) candle.
– Aggressive: enter on an early push above the third candle’s open or intraday breakout.
– Stop placement:
– Tight: just below the low of the doji or slightly below the lowest of the three candles.
– Wider: below the recent swing low to allow for noise.
– Profit targets:
– Fibonacci retracements of the prior down leg (e.g., 38.2% or 50% retracement).
– Fixed risk/reward ratio (for example, target 2× the dollar risk).
– Trailing exit using a moving average or a series of higher lows.
– Risk management:
– Risk a fixed percentage of account capital per trade.
– Avoid overtrading; the pattern is rare and can give false signals in choppy markets.
– Variations and relaxations
– Variations and relaxations
– Narrow-gap version: the gaps between the first/second or second/third candles are small but still non-overlapping on typical intraday chart resolution. This weakens the signal; require additional confirmation (volume spike or oscillator divergence).
– Single-gap (abandoned doji) variant: only one gap occurs (either into or out of the doji). Treat as a less reliable signal; use tighter sizing and a closer stop.
– Intraday abandoned baby: gaps occur on a shorter timeframe (e.g., 5‑minute bars) rather than daily candles. Higher chance of noise and slippage; reduce position size accordingly.
– No-gap “lookalike”: candles mimic the shape but have overlapping ranges (no true gap). Do not call these abandoned babies; they belong to other reversal families (e.g., morning star). If traded, treat conservatively.
– Additional confirmation techniques (use to filter false signals)
– Volume confirmation: higher-than-average volume on the third candle supports conviction. Define “higher” as at least 1.2× recent average volume for that symbol and timeframe.
– Momentum divergence: bullish divergence on a momentum indicator (e.g., RSI — Relative Strength Index) between the low of the prior down leg and the doji low.
– Moving average support: price holding above a short-term moving average after the third candle (e.g., 20-period MA on the chosen timeframe).
– Multiple timeframe alignment: pattern on a daily chart confirmed by bullish bias on a higher timeframe (weekly).
– Practical trading checklist (pre-entry)
1. Confirm three‑candle formation with non-overlapping gaps (or note variation).
2. Verify the middle candle is a doji (open ≈ close; small body relative to range).
3. Confirm increased volume on the third candle or additional technical confirmation (momentum, MA, divergence).
4. Define entry trigger: close above third candle’s high (conservative) or early intraday breakout (aggressive).
5. Set stop-loss: immediately below the doji low (tight) or below recent swing low (wider).
6. Calculate position size given dollar risk (see worked example).
7. Define profit target(s) and exit rules (fixed R:R, Fibonacci retracement levels, or trailing exit).
8. Log the trade and reason; measure outcome for ongoing refinement.
– Worked numeric example (position sizing and targets)
– Assumptions:
– Account equity = $50,000.
– Risk per trade = 1% of account = $500.
– Instrument current price at entry = $40.00 (enter on close above third candle).
– Stop-loss set at $38.00 (just below doji low) → risk per share = $2.00.
– Target = 2× risk (reward-to-risk = 2:1) → target price = $40 + (2 × $2) = $44.
– Position size:
– Shares = Dollar risk / risk per share = $500 / $2 = 250 shares.
– Notional = 250 × $40 = $10,000 (20% of account; ensure this fits portfolio constraints).
– Alternate target using Fibonacci: if prior down leg fell from $60 to $36 (24 points), 38.2% retracement = 9.17 points → target ≈ $36 + 9.17 = $45.17. Choose exit based on your plan (partial profit at first target, trail rest).
– Order-type recommendations
– Conservative: place a limit buy at a one‑tick better than the breakout and a guaranteed stop‑loss (market stop) placed on exchange; accept some slippage.
– Aggressive: enter market order on early breakout but reduce size; place stop-loss as a guaranteed stop if available.
– Use OCO (one‑cancels-the-other) bracket orders when your platform supports them to automate the stop and target.
– Backtesting and sample performance metrics to evaluate
– Use at least several years of data and multiple symbols to avoid data‑mining bias.
– Key metrics: win rate, average reward/risk per trade, maximum drawdown, expectancy = (win rate × avg.win) − (loss rate × avg.loss).
– Minimum viable result: positive expectancy and acceptable max drawdown for your risk tolerance. If the pattern is rare, aggregate across similar instruments or broaden timeframe to gain statistical significance.
– Limitations and common pitfalls
– Rarity: the abandoned baby is uncommon; small sample size makes statistical inference difficult.
– Market structure dependence: gaps are less common in 24/5 markets (FX, crypto), reducing applicability.
– False breakouts: choppy markets produce fake gap signatures; always combine with other rules.
– Execution risk: overnight gaps create slippage between the last close and first tradeable price; consider that when using daily charts.
– Survivorship bias and lookahead bias in testing can overstate historical performance; test with tick- or minute-level fills if possible.
– Quick reference (summary rules)
– Pattern: downtrend → bearish candle → doji that gaps below prior low → bullish candle that gaps above doji and closes into/above the prior candle’s body.
– Entry: conservative = close above third candle’s high; aggressive = intraday breakout above third candle’s open/high.
– Stop: tight = below doji low; wider = below recent swing low.
– Targets: Fibonacci retracements, fixed R:R (e.g., 2:1), or trailing stop.
– Risk: size position so dollar loss if stopped equals predefined percent of account.
Sources and further reading
– Investopedia — Bullish Abandoned Baby: https://www.investopedia.com/terms/b/bullish-abandoned-baby.asp
– StockCharts — Candlestick Pattern Dictionary (includes abandoned baby): https://school.stockcharts.com/doku.php?id=chart_analysis:candlesticks
– CMT Association — Technical Analysis resources: https://cmtassociation.org/technical-analysis/
Educational disclaimer
– This information is educational only and not individualized investment advice. Patterns and indicators can fail; consider your risk tolerance, perform your own research, and consult a licensed professional before trading.