Definition - Signaling a bottom reversal, this pattern sees three candlesticks. Although it has many similarities with the Bullish Morning Doji Star, there is one key difference in that the shadows seen on the Doji should always gap below the shadows seen on day one and three. Although it uses a strange name, it comes from the second day which seems to float on the chart like an abandonment by days one and three. In essence, the initial black candlestick is followed by a ‘gapping away’ Doji from the previous candlestick. Finally, the third white candlestick closes some way into the black body of the first candlestick.
- On the very first day, a black candlestick can be seen in a market that has experienced a prevailing downtrend for some time.
- On day two, a Doji will form - the shadows of which must gap below the lower shadow from the previous day.
- On day three, the white candlestick gaps in the other direction so no shadows overlap.
Patterns and Flexibility
Starting with a black candlestick that can be anything but short, the Bullish Abandoned Baby continues with the Doji that gaps away from the candlestick before. After the third white candlestick forms, traders must ignore the gap between the high of the Doji and the low of the newest candlestick. As it closes some way into the first black candlestick, the extent of the close will be determined by the other candlesticks seen in the pattern so far. However, the close of the third day must find the midpoint between the lowest body on day two and the opening on day one.
Behaviour of Trader
As the market is in a downtrend, the first black candlestick confirms this trend. When the Doji appears and causes a gap, it suggests that the bears are pushing the price down. However, there is still deterioration in the previous trend seen by the lack of price changes from open to close. On day three, some of the ground lost will be regained by the candlestick starting above the previous day.
Buy/Stop Loss Levels
For there to be confirmation, prices will need to cross above the last close - in this case, the last close is used as a confirmation level. For the stop loss level, the lower of the previous two lows is used. If the prices fall instead of rising following the buy, the stop loss will be triggered if there are two days of lows beneath the stop loss unless there is a bearish pattern.