In this review, we will get acquainted with the candlestick analysis strong reversal
A pattern is a particular recurring situation on the price chart of a financial instrument, which helps the trader to predict further possible price movements based on historical data.
” href=”https://blog.roboforex.com/glossary-terms/pattern/”>pattern “Abandoned Baby”. Let’s look at the features of its formation, and the trading techniques for this pattern.
How the “Abandoned Baby” pattern is formed
The Abandoned Baby candlestick pattern is a rare, strong reversal pattern that forms on the local highs and lows of the price chart. It consists of three candlesticks. The first one has a normal body, and the second one is a doji candle (it has practically no body, the open and close prices being almost the same). The third one closes in the opposite direction to the first candlestick. The second candlestick should have gaps (price gaps) on both sides.
As noted by the guru of candlestick analysis Steve Nison, the appearance of a doji after a strong white candlestick indicates the current overbought state of the financial instrument. And vice versa: the appearance of a doji after a black candlestick indicates an oversold condition of the asset. In the “Abandoned Baby” pattern, a doji opens with a
A gap is an area of price gaps and discontinuity on a financial instrument’s chart. It occurs when the opening price of a trading period has risen or fallen significantly compared to the closing price of the previous trading session. As a rule, gaps occur under the influence of important news.
” href=”https://blog.roboforex.com/glossary-terms/gap/”>gap from the first candlestick, followed by a gap in the opposite direction, with the third candlestick closing thereafter to confirm the reversal.
“Abandoned Baby” is very similar to “Morning Star” and “Evening Star” in its formation principle, but differs in the appearance of a doji candlestick with a gap on both sides. “Morning Star” and “Evening Star” do not require the average candlestick to be a doji or have gaps on both sides, so they are much more common on price charts.
“Bullish” pattern “Abandoned baby”
This is formed during a downtrend, at the lows of the price chart. The first black candlestick appears first. Against the backdrop of negative market sentiment, the next trading session opens with a gap down, but the “bears” do not succeed, and a doji appears on the chart. Seeing the weakness of the sellers, the bulls seize the initiative: the third candlestick opens with a gap up and closes with a confident white body.
A bullish “Abandoned Baby” reversal pattern forms on the chart as a result. Buyers have managed to seize the initiative, and are ready to keep pushing the price up. If the “bears” fail to close the gaps and drop the quotations below the doji low, the “bulls” are likely to go on the offensive and initiate an upward correction or even a
A trend is a direction in which the market or the price of an instrument is moving. Trends can be upward, downward or sideways and are common to all types of markets.
