The Abandoned Baby Bottom Candle Pattern is a candle pattern formed by three candles and signals a potential reversal in the market. In this article we will show you how to identify them in the right market position with chart examples.
The Abandoned Baby Bottom Candle Pattern is a three candle pattern which signals a potential reversal in the market. The Abandoned Baby Bottom is bullish and should be identified as a signal when occurring in a down-trending market or at the bottom of a range.
Abandoned Baby Bottom Candle Pattern Criteria:
- The first candle is a large red (bearish) candle followed by a Doji Candle (Abandoned Baby Bottom).
- The Doji (Abandoned Baby Bottom) is a doji candle that gaps away from the large real body preceding it.
- The Abandoned Baby Bottom is a warning that the prior trend may be ending. A doji candle represents indecision and as such a stalemate in the tug of war between bulls and bears.
- Abandoned Baby Bottom should have a gap between the first and second candle’s low and then another gap between the second and third candle’s low.
- The difference between this and the Morning Doji Star candle pattern is that there is a gap between the doji and the third (green bullish) candle (the shadows do not overlap).
- The main concern should be the extent of the intrusion of the third candle’s green (bullish) real body into the first day’s red (bearish) real body.
- If there is light volume on the first candlestick session and heavy volume on the third candlestick session. This would show a reduction of the force for the prior trend and an increase in the direction force of a new trend.
- This is a very rare pattern but is considered a major bottom reversal pattern.
- For a reminder of what a Doji candle is please see this article: Doji’s Explained.
Quick Reference Guide – Candlestick Basics. If you need a reminder of what candlesticks are have a look at our free PDF – Candlesticks Explained.
The criteria and examples above are just the technical definitions of this pattern. However patterns are only useful with context and with real chart examples.
No pattern will ever exactly match the criteria and in order to be a useful signal must occur in the correct place in a trend. Let’s start by looking at the classification table for this pattern.
Abandoned Baby Bottom Candle Pattern Classification Table
|Number of Candles In Pattern||3|
|Market Conditions: Range, Down-trend, Up-trend||Down-trend, Ranging|
|Position: Top, Bottom, Range||Bottom|
What Price Action Does The Abandoned Baby Bottom Pattern Represent?
All candlestick patterns are formed by price action. But the popular ones represent price action that may have significance in signalling the direction of the market.
The Abandoned Baby Bottom Candle Pattern is a bullish reversal pattern so the price action should reflect in the first instance a bearish (down) trend that loses momentum followed by a bullish signal.
This is represented in this three pattern candle with an initial red candle with a large real body which should be seen in a down-trend or the bottom of a range. This is followed by a second candle that gaps down.
This is indicative of positive downward momentum. However, the second candle forms a doji when it loses momentum and closes with a relatively small or no real body. This is an indication that the momentum has slowed and indecision in the market.
The final element of a bullish reversal pattern is the formation of the third bullish candle. This should gap up from the baby bottom and is more valid the further it extends into the real body of the first candle.
This initial bearish momentum followed by a stalled candle and then a bullish reversal candle with a gap can be seen as a potential signal that the bears cannot extend the trend and a potential change in direction is at hand.
As with all reversal patterns, these signals are better when seen after a sustained trend in one direction. The signal is best when formed in a trend but can also be valid when formed at the appropriate place in a ranging market.
Abandoned Baby Bottom Pattern Example With Confirmation
In this example on the GBP/USD market the price action had been down-trending towards a round level resistance area which it had already found resistance at.
The market attempted to break through but then formed an Abandoned Baby Bottom Candle Pattern, signifying a loss of momentum. This along with the resistance level was too much for the market to break through and a reversal occurred.
In What Market Conditions Does The Abandoned Baby Bottom Pattern Become A Signal?
To recap – the Abandoned Baby Bottom Candle Pattern is a potential signal when occurring after a sustained down-trend or at the bottom of a range.
It is required to have a gap down to the middle doji candle (the abandoned baby) and a gap up to the third bullish candle.
The higher the third candle penetrates into the losses of the first red candle’s real body, the more valid the signal becomes.
As with any bullish reversal signal it should be treated with caution and may just be an opportunity to cover shorts rather than as a signal to buy the market.
Let’s look at some more examples.
Abandoned Baby Bottom Candle Pattern In A Down-trending Market
A down-trending market is one where the price action generally moves down over time and is characterized by lower lows and lower highs.
In this GBP/JPY market example the market was down-trending and then an Abandoned Baby Bottom Candle Pattern formed. The market then reversed and moved up.
Abandoned Baby Bottom Candle Pattern In A Ranging Market
A ranging market is one where the price action moves up and down between two sets of support and resistance. This is also known as a sideways, balancing or horizontal market. In essence the price action is struggling to break out of the range decisively either on the upside or downside.
Although not traditionally used as a signal in a ranging market, it can still be a useful tool to help define the bottom of a range.
This is because the price action it represents (slowing momentum) is the type of signal that is useful to indicate that the market is less likely to break out of the range it is in.
In the GBP/USD market example below you can see an example where a strong down move looked initially like a potential break down out of the range.
However, the second candle formed a doji and this was followed by a third bullish candle which completed an Abandoned Baby Bottom Pattern. This instead validated the bottom of the range.
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Important Information About Candlestick Patterns
Interpretation Of Candle Patterns:
It is important to note that these patterns were originally identified on the daily timeframes of index charts, which is still where they are the most useful. However, this does not mean that they cannot be used for other markets or time frames.
No signal is perfect and should never be used as such. Any patterns that you identify only signals a potential move based on the fact that history repeats itself and forms regular patterns in similar situations.
But past performance is no guarantee of future results! So always treat these patterns with care and think of these guidelines when using them.
Best practice guide for trading of candle patterns:
- No pattern is ever perfect. Be aware that patterns will form slightly differently each time and in different markets.
- Use them as consistently as possible. Even though you will never find patterns exactly the same, you should always implement a consistent ruleset when identifying and using patterns.
- It is never a guarantee, only an indication.
- Make sure you are using it in the right context. For example if it is a continuation pattern then don’t use it to trade reversals!
- Use multiple signals (confirmations) to have more confidence in your trading.
Related Candle Patterns
Shooting Star Candle Pattern
Morning Star Candle Pattern
Evening Star Candle Pattern
Morning Doji Star Candle Pattern
Evening Doji Star Candle Pattern
Abandoned Baby Top Candle Pattern
More About Candlestick Patterns
If you are interested in reading more about candlestick patterns you can find our articles on this topic here: https://www.nothardtrading.com/category/candle-patterns/ or choose a pattern below to read more.