Introduction
You might see this pattern once or twice a year, but when you do, pay attention. The Bullish Abandoned Baby is a specific type of Morning Star characterized by gaps on both sides of the middle candle.
The middle candle is left completely alone (“abandoned”) at the bottom of the chart.
How to Identify It
- Gap Down: A massive drop where the price opens well below the previous day’s low.
- The Doji: The middle candle is a Doji, and its shadows do not touch the shadows of the previous candle. It is floating in space.
- Gap Up: The third candle gaps up significantly, leaving the Doji isolated.
The Psychology
This is an “Island Reversal.” The gap down trapped sellers who entered late. The gap up trapped short-sellers who couldn’t cover. This creates a panic buying scenario where everyone is rushing to get in (or get out of shorts).
Trading Strategy
- Patience: Do not confuse this with a Morning Star. The gaps must be clear.
- Entry: Buy immediately on the gap up of the third candle.
- Stop Loss: Just below the gap (above the Doji).