The Abandoned baby chart pattern looks like someone went for a drive, opened the door, dropped something off and drove away; cruel but hey someone else named it. As horrible as that sounds, when seen in a stock chart it’s a pattern, where first candle is any long candle. The second candle is a small candle (Doji). The second candle doesn’t overlap the first or third candle. The third candle is any long and bullish candle.
The abandoned baby is rare, but reliable, chart pattern which is used by traders as an indication of a possible trend change.
The abandoned baby can be used in either direction, bullish or bearish. The bullish abandoned baby has a bearish down trend, the abandoned baby, then a bullish candle right after. The reverse is there for the bearish abandoned baby.
A Dead Cat Bounce is a temporary recovery from a period of declining stock price. This is not a Bottom Bounce, as this is a temporary bounce in price, normally due to short cover or buyers anticipating a bottom bounce.
Generally in a declining stock price, there could be several dead cat bounces.
Let say a stock price has drop 30% and buyers think it has reached the bottom and might start going back up, they buy in temporary raising the stock price, causing a dead cat bounce.
A Bottom Bounce is chart pattern shows when a stock chart’s price action hits a bottom and bounces back up, Generally forming what looks like a “V” appearance on the chart. Generally there is a trend of declining price action up to a point where the bounce occurs and the price action moves back up.
A Bottom bounce is different from a Bottom Reversal, where the Bottom bounce does not always mean a change in longer term trend for the stock price, more so a temporary bounce.
If you want to know what a bottom bounce would look like; get a ball and go on your roof. Simply drop the ball from the roof and you will see about a 10-50% bounce from the height the ball was dropped. This is not to say every bounce will be 10-50%.
It’s difficult and risky trying to catch the bottom of a bounce. Generally it’s a good idea to position for a swing trade opportunity when you see the drop and a green candle starts to form. Make sure you honor your stop losses and stick with your original trade plan when trading a bottom bounce opportunity.