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Saturday, March 15, 2008

ABANDONED BABY BULLISH vs. BEARISH

Both Abandoned Baby Bullish & Bearish are 3-day reversal patterns.
Whether a pattern is bearish or bullish reversal, it depends upon whether it appears at the end of a downtrend (Abandoned Baby Bullish) or an uptrend (Abandoned Baby Bearish).

As you may have noticed, Abandoned Baby Bullish & Bearish patterns resemble Morning Doji Star & Evening Doji Star patterns, respectively.

The main difference between Abandoned Baby Bullish / Bearish patterns and Morning / Evening Doji Star patterns are as follow:
For Abandoned Baby patterns, the shadows of the Doji on the 2nd day must completely gap below / above (or separated from) the shadows of the 1st and 3rd day candles.
In other words, there must no overlapping shadows between the Doji on the 2nd day and the 1st & 3rd day candles.



ABANDONED BABY BULLISH
Abandoned Baby Bullish is a bottom reversal pattern / bullish reversal pattern.
It may be formed at the end of a downtrend, or during a pullback within an uptrend, or at the support.

Abandoned Baby Bullish pattern consists of 3 candlesticks:
1) A long-body black/red candle, extending the existing declining trend.
2) A doji that gapped down on the open below the low of the previous candle.
3) A long-body white candle that gapped up on the open above the high of the doji.

When the price is in the midst of a downtrend or a pullback within an uptrend, the long black/red candle confirms that the sellers (bears) remain strong.
Subsequently, on the 2nd day, the price gaps down sharply below the low of the previous day’s candle, providing further evidence of strong selling pressure. However, after the gap down, the decline does not continue and the price closes at or very near to the open, forming a doji candlestick. The doji signals indecision and indicates that selling pressure starts to weaken and a reversal of trend could be happening soon.
On the 3rd day, the price gaps up significantly above the high of the doji and then rallies, forming a long white candle. This candle confirms the bullish reversal, particularly when accomplished by strong volume.

ABANDONED BABY BEARISH
Abandoned Baby Bearish
is a top reversal pattern / bearish reversal pattern.
It could be formed at the end of an uptrend, or during a bounce within a downtrend, or at the resistance.

Abandoned Baby Bearish pattern consists of 3 candlesticks:
1) A long-body white candle, extending the existing uptrend.
2) A doji that gapped up on the open above the high of the previous candle.
3) A long-body black/red candle that gapped down on the open below the low of the doji.

When the price is in the midst of a uptrend or a bounce within an downtrend, the long white candle confirms that the buyers (bulls) are still in control.
Subsequently, on the 2nd day, the price gaps up sharply above the high of the previous day’s candle, providing further evidence of intense buying pressure. Nevertheless, after the strong gap up, the rally does not continue and the price closes at or very near to the open, forming a doji candlestick. The doji signals indecision and indicates that buying pressure begins to subside and a reversal of trend should be nearing.
On the 3rd day, the price gaps down significantly below the low of the doji and then continue to drop, forming a long black/red candle. This candle confirms the bearish reversal, particularly when accomplished by strong volume.

To read about other Candlestick Patterns, go to: Learning Candlestick Charts.

Related Posts:
* Learn Technical Analysis from Linda Raschke for FREE
* Learning Charts Patterns
* Options Trading Basic – Part 1
* Options Trading Basic – Part 2
* Understanding Implied Volatility (IV)
* Option Greeks

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