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Financial Indicator

Macroaxis News
By Nathan Young

October 25, 2017

Candlestick patterns are noted to help traders and investors find entry and exit points in the market. The concealing baby swallow is no different. For the example used, we will assume the market is in a downward trend and there may be a bullish reversal near. This is a difficult pattern to spot because there are not one or two, but four candles that go into the formation of this pattern. Let us begin with the setup and what to look for.

Concealing Baby Swallow

First, we already determined that the market is in a downward or bearish pattern. The first candle is a long bearish candle with no wicks. The second candle is the same as it confirms the continued downward pressures. Now, the third candle is a variation because it opens lower but shows signs of bears entering the market by having a large upper wick, but still closing lower. The fourth and final candle opens higher that the previous candle, but throughout the period, the bears push it down closing lower than the third candle.

You may be wondering how this is a bullish reversal. That is because in the third candle, the market experienced indecision and pushed to the upside. Then the second candle opened higher but ultimately was pushed back to the downside. In this situation, you would want to watch for the fifth candle to see if it was bearish or bullish in nature. Also, watch volume levels, especially on the third candle because it could mean an influx of new money. Another viewpoint on the fourth candle could be market participants covering their shorts.  

This is a difficult pattern to spot and use so it may or may not be the best option for your current setup. MacroAxis has many different trading tools and research tools to dig deeper into this setup. Candlestick patterns are meant to alert traders to potential shifts rather than a certain indication.

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See also Investing Opportunities. Please also try Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..