BULLISH CONCEALING BABY SWALLOW
Definition
This pattern is formed by four black candlesticks. Following two consecutive falling Black Marubozu days, a short down day engulfed by a fourth black candlestick indicates that the downtrend has significantly weakened, even though the final close is at a new low.
Recognition Criteria
1. The downtrend is confirmed by two consecutive falling Black Marubozu days at the beginning.
2. The third day is a short black candlestick with a downside gap, but it trades into the previous day’s body, creating a long upper shadow.
3. The fourth black candlestick completely engulfs the third day, including its shadow.
Pattern Requirements and Flexibility
The first two days of the Bullish Concealing Baby Swallow pattern are types of Black Marubozu. The third day features a short black candlestick with an upper shadow that extends into the previous day's trading range. The fourth black candlestick makes a new low and completely engulfs the trading range of the third day.
Trader’s Behavior
Two Black Marubozu candlesticks indicate that the downtrend is continuing, satisfying bearish traders. On the third day, a downward gap further confirms the downtrend. However, prices start rising above the previous day’s close, causing some doubts about the bearish direction, even though the day ends at or near its low. The following day opens with a significantly higher gap but then prices decline again, closing at a new low. This last day may be interpreted as an opportunity for short-sellers to cover their positions. An upside reversal still requires confirmation with a white candlestick.
Buy/Stop-Loss Levels
The confirmation level is defined as the midpoint of the previous short black body. For confirmation, prices should rise above this level.
The stop-loss level is set at the lower of the last two lows. After a BUY signal, the stop-loss is triggered if prices decline instead of rising and either close below the stop-loss level or record two consecutive daily lows below it, without any bearish pattern being detected.