Abandoned Baby

Trend is your friend. Dance with the friend. Tune to the trend.

Abandoned Baby is a reversal chart pattern, formed by price action in a single time period, which is separated from rest of the price action by gaps. It is very reliable, with 80% probability.

Pattern Formation
When a down trend is at its end, it will make its last lap by creating an exhaustion gap. Next day the trend reverses with a breakaway gap and an up trend begins. This leaves behind a single bar / candlestick, separated from other bars / candlesticks, as if it is orphaned.

Most of the time this single candle is a doji or a candle with a long lower wick.

If it occurs at the end of an up trend we usually get a doji or a candle with a long upper wick.

Study the chart given below.

abandoned baby, chart patterns, stock trading

How to trade?
These are traded in the same way as the break away gap. An entry is made above the break away gap, with the stop loss at below the gap.

When this formation occur at the end of an up trend, a trade entry is made below the break away gap, with the stop loss above the gap.

abandoned baby, chart patterns, stock trading

Why Abandoned Baby occur?
It occurs due to the appearance of exhaustion gap and break away gapconsecutively. When the ongoing trend meets a strong support or resistance, it ends up forming an exhaustion gap. After the next day the trend reverses and continues with a break away gap, in the opposite direction. This leaves behind a solitary candlestick.

Instead of a solitary candle, we can have an island of several bars / candlesticks. This formation is called as an Island-Formation.

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