Candlestick Warning Signals
Before you can really understand how to spot the bearish abandoned baby, it’s important that you have a basic understanding of how candlestick charts work in general. Created by early Japanese rice traders this system is based on tracking opening and closing prices for each day. The body of the candlestick shape (a bar) can be white (or hollow), solid black, blue or red. The edges of the body indicate the opening and closing prices and the range in between them. The color of the body represents a general gain or loss on the day.
Most traders look for the bearish abandoned baby when they are anticipating a reversal of the current trend. A reversal takes place when a stock that has been trending upward suddenly starts to move down, and vice versa. Because this is a bearish candlestick signal, it is used to indicate that the trend is about to move downward. You can spot this signal by looking for a large white candlestick that is contained in a strong uptrend. Look for this to be follow by a doji or a candle that indicates the opening price was equal to the closing price, that gaps above the close of the first candlestick.
Although the bearish abandoned baby pattern is considered to be relatively rare among technical analysts, it is revered as one of the most reliable candlestick patterns. Once you’re better at spotting it, you’ll be able to use it to predict changes to a seemingly controlled uptrend.