The concealing baby swallow is a bullish trend-reversal signal and it is a very rare yet very reliable signal. The first two days of the concealing baby swallow, which are two black marubozus, demonstrate the continuation of a downtrend. On the third day the inverted hammer illustrates that the downtrend is losing steam. Notice the buying strength that is demonstrated as it gaps down on the open and then trades up into the previous day’s trading range. The last day opens higher and closes below the previous day’s close as it completely engulfs the whole trading range of the previous day. Although trading ends at the trend’s low point, the magnitude of the downtrend deteriorates significantly. Investors should expect buying to show itself at these levels.
Criteria for concealing baby swallow
- Two large black marubozus make up the beginning of this pattern and there should be no upper or lower shadows
- The third day is an inverted hammer formation and it gaps down from the previous day’s close
- The final day completely engulfs the third day (including the shadow)
Pattern Psychology
The bears are in control for a while (indicating that the downtrend is strong) and at the end of this downtrend two black marubozu days appear. The third day gaps down at its low and then trades up into the trading range of the previous day. The sellers then step in to negate the buying however the bears take notice of the buying that did occur. The final day opens higher, again, causing much concern for the sellers. As it sells off for the rest of the day, it offers the opportunity for shorts to cover their positions. The new closing low is not of the same magnitude of the previous down days of the trend. The buyers do not run into very much selling resistance from here as the trend is expected to reverse.
The concealing baby swallow is a highly reliable formation but please note that a bullish candlestick with a gap up or a higher close on the following trading day is necessary for confirmation of the trend.
Please continue to learn about more candlestick patterns.
