Last Updated on 10 February, 2024 by Trading System

There are many candlestick patterns out there that tell different stories about the market. Some may indicate a potential reversal, while others signal a trend continuation. You may be wondering what the Concealing Baby Swallow candlestick pattern is and where the pattern belongs.

The Concealing Baby Swallow candlestick pattern is a four-candlestick pattern that can signal a bullish reversal price movement or a bearish continuation move, depending on where it occurs in the overall market structure. However, the pattern is quite rare, and you may not encounter it in your trading.

In this post, you will learn the following:

• What the Concealing Baby Swallow candlestick pattern is
• How to identify it
• What the pattern can tell you
• The psychology behind the pattern
• How to trade the pattern
• The limitations of the pattern

What is the Concealing Baby Swallow candlestick pattern?

The Concealing Baby Swallow is a candlestick pattern that consists of four candlesticks with bearish bodies. Depending on where the pattern occurs and the subsequent price action after it, the Concealing Baby Swallow may be a bullish reversal pattern or a bearish continuation pattern.

The first two lines in the pattern are bearish marubozu candlesticks, which are candlesticks with a long body and little or no wicks. The third candlestick shows some upward movements during the trading session, rising into the body of the second candlestick, but the price later declined to close near the preceding candlestick’s low. Also, the last candle totally engulfs the third one but it still closes bearishly.

The pattern shows what happens during a declining market: The bulls respond quickly to two very bearish candlesticks. And after the first two bearish candlesticks, the demand rejects further falls and responds with a large bullish candle that could initiate a new upswing but still can’t sustain it as the price ends bearishly.

The level where the pattern occurs and the next candlestick after the pattern are key to what the pattern may signify. If it is formed against a strong support level in an up-trending market and the next candlestick following the pattern is bullish, the Concealing Baby Swallow candlestick pattern will be considered a bullish reversal pattern. Consisting of four candlesticks that give an early signal of downtrend’s deterioration, this pattern shows how buyers respond very quickly to two consecutive bearish candlesticks occurring during a downward price movement. There is an increase in buying pressure after the first two candlesticks, but the price is rejected as it attempts to move up. But if a bullish candlestick immediately follows the pattern, then the bulls mean business, and a reversal may be around the corner.

However, if the pattern appears within a downward impulse wave of a downtrend, it will most likely play out as a bearish continuation pattern because it occurs in the direction of the trend. Although it is a bit tricky to identify the Concealing Baby Swallow, it is a very important pattern that can tell traders about the overall behavior of the market. The pattern is very rare though.

How to identify the Concealing Baby Swallow candlestick pattern

The Concealing Baby Swallow candlestick pattern is made up of four candlesticks, which are characterized as follows:

1. The first candlestick:

• a downward price swing
• a marubozu candlestick with a bearish body (black, red, or any color of choice for bearishness)

2. The second candlestick:

• a bearish marubozu candlestick
• candlestick opens within the prior candlestick’s body
• candlestick closes below the prior closing price

3. The third candlestick:

• a bearish candlestick with long upper shadow and no lower shadow, more like the High Wave candlestick
• candlestick opens below the prior closing price
• upper shadow enters the prior candlestick’s body

4. The fourth candlestick:

• a tall candlestick with a bearish body
• candlestick’s body covers the preceding candlestick’s body and the shadows

As you can see, the Concealing Baby Swallow is a four-line candlestick pattern, with two black marubozu candlesticks appearing one after the other, which is not quite common on the candlestick charts what limits the appearance of this pattern. But with the additional requirement — the appearance of the High Wave candlestick and an engulfing bearish candlestick — means that the pattern is almost impossible to see on the charts.

Then, there is a gap between the first and the second line, while the second and the third line may form an Inverted Hammer pattern, which is on its own could have a bullish reversal or bearish continuation effect like the Concealing Baby Swallow.

To sum it up, the pattern has the following characteristics:

• The first candlestick is a black marubozu that appears during a downward price swing.
• The second candlestick is also a black marubozu; it opens within the body of the previous candlestick and closes below the previous closing price.
• The first two candlesticks are without any upper or lower shadow.
• The third candlestick is a High Wave without a lower shadow; it opens below the previous closing price while its upper shadow enters the body of the previous candle.
• The fourth candlestick has a black body that consumes the body and upper shadow of the preceding candlestick.

What does the Concealing Baby Swallow candlestick pattern tell you?

The Concealing Baby Swallow candlestick pattern can signify a potential bullish reversal or a possible bearish continuation. The actual significance of any given pattern depends on the market situation when it appears.

If the market is in a full-blown downtrend, for example, the strong impulse waves move downwards in the trend direction, while the weak pullbacks move upwards. In this kind of market situation, the Concealing Baby Swallow candlestick pattern occurs in the powerful downswings, which are more likely to continue descending after the pattern because the trend is still strong. Here, the pattern is occurring against the trend and may have been brought about by profit-taking (early sellers covering their shorts).

The Concealing Baby Swallow candlestick pattern can also tell traders about an upcoming reversal to the upside. In this case, the market is either range-bound or in an uptrend. The Concealing Baby Swallow pattern can occur at the end of a downswing to the lower border of the range or the end of a pullback in an uptrend. Whatever the case, the pattern gives early signals of deterioration of the downward movement: The first two candlesticks of the Concealing Baby Swallow are perfectly in line with the selling pressure. However, the third day’s candlestick creates a downward gap but trades up into the trading range of the prior day before being forced down to close at a new low. The fourth candlestick opens higher, which raises concerns for the bears, but they still managed to force the market to close lower than the previous day, which may turn out to be their last punch.

Whatever the market situation and the expected signal from the pattern — a bearish continuation signal in a downtrend or a bullish reversal signal in a range market or after a pullback in an uptrend — the next candlestick should confirm the signal. In the case of a downtrend, this fifth candlestick has to be bearish to confirm the continuation of the downtrend. For an up-trending or range-bound market, a bullish reversal signal is confirmed if that next candlestick after the pattern is bullish.

The psychology behind the Concealing Baby Swallow candlestick pattern

But what is the psychology behind the pattern? Well, it is always about the actions of the bears and the bulls. Whether the pattern is formed in a downswing of a downtrend, an uptrend (pullback), or a range-bound market, the Concealing Baby Swallow pattern shows the activities of the bears and bulls in a market that is already being dominated by bears.

On the one part, the pattern is a result of profit taking (covering shorts) by sellers who went short at a higher price level. This especially true in a full-blown downtrend where many traders might have gone short, so when they are taking profit, the price tends to move back and forth without making any serious progress. But after the profit taking, the downfall is likely to continue, and this is confirmed when the price descends further down.

In the case of a range market or an uptrend, other factors come into play in addition to profit taking by short-sellers. The pattern, in these situations, forms against a support level. In an up-trending market, the pattern is likely to form at the end of a pullback to a significant support level, which may be designated by a horizontal level, a trend line, or a moving average. For a range-bound market, the pattern forms at the lower border of the range, which, of course, is a support zone.

Around these support levels, there are usually buy limit orders lying in wait. When the downward price swing reaches such levels, the bears, who have been driving the price down, find it difficult to take out all the orders and push the price lower. Moreover, the bulls on the sidelines waiting for the price to get to those levels also start flooding the market with buy market orders and bidding the price up. So, there is a battle between the bears and the bulls. After several attempts to get the price lower, the bears give up, allowing the bulls to push up the price — as confirmed by the next candlestick after the pattern closing bullishly.

How to trade the Concealing Baby Swallow candlestick pattern

From our discussion so far, you can see that you can either trade the pattern as a bearish continuation signal or a bullish reversal signal. But most traders tend to look for conditions where they can trade the pattern as a bullish signal. Whichever signal you want to trade, you need some other trading tools to confirm that the conditions are right for the trade you want to make. Some of the tools you will need include:

• Trend lines: You use trend lines to confirm the direction of the trend and also mark potential rising support levels or descending resistance levels. In an up-trending market, you attach the trend line to the lows of the pullbacks (downward price swings), while in a downtrend, you attach it across the highs of the rallies (pullbacks). When trying to trade the Concealing Baby Swallow in an uptrend, look for the pattern when there is a pullback to the trend line.
• Long-period moving averages: Long-period moving averages, such as the 200-day, 100-day, and 50-day moving averages, can help you to identify the direction of the trend as well as spot potential support or resistance levels. In an uptrend, look for the Concealing Baby Swallow when the price pulls back to the moving average line.
• Support/resistance levels: Support levels are demand zones with lots of buy limit orders, while resistance levels are supply zones with sell limit orders. For the Concealing Baby Swallow, the support level is what matters. In an uptrend, the pattern should be hanging on a support level, where the price can bounce off from. But in a downtrend, where the pattern gives a bearish continuation signal, the pattern should occur after a break below the support level, which will then become a resistance level.

Trading with the Concealing Baby Swallow candlestick pattern

There are three possible ways to trade this pattern, depending on where you find it. But you must wait for the right confirmation in each situation before placing a trade.

Going long in an uptrend

In an up-trending market, the pattern becomes very significant if it occurs at the end of a pullback, especially if the pullback ends around a known support level, a trend line, or a long-period moving average. You need to see a bullish candlestick after the pattern to confirm it. Go long at the close of that bullish candlestick; put your stop loss below the swing low, and place your take profit order just before the next resistance level.

Trading the upswing of a range market

The Concealing Baby Swallow can also mark the end of a downswing and the beginning of an upswing in a range-bound market. Here, the setup hangs against the lower boundary of the range. A bullish candlestick following the pattern confirms it. Go long at the close of that bullish candlestick. Place your stop loss below the lowest point of that lower boundary and your profit target just before the upper boundary.

Going short in a downtrend

In a downtrend, the Concealing Baby Swallow gives a bearish continuation signal. If you wish to trade the signal, you must confirm that the market is indeed in a downtrend. There must be a bearish candlestick following the pattern; you may go short at the close of that candlestick. Place your stop loss above the pattern and your profit target just above the nearest support level.

The limitations of the Concealing Baby Swallow candlestick pattern

The main limitation of this pattern is that it occurs quite rarely because the conditions required to define it are many and can’t easily occur together. Another issue is that, like every other candlestick pattern, it doesn’t give a profit target.

Our archive and articles with every Candlestick pattern.

FAQ

How is the Concealing Baby Swallow pattern identified?

The Concealing Baby Swallow is a four-candlestick pattern, consisting of two bearish marubozu candlesticks followed by a bullish candle and concluded by a bearish engulfing candle. Look for four candlesticks with specific characteristics, including bearish marubozu, an engulfing bearish candle, and a High Wave-like candle. The pattern is rare due to its specific requirements, making it challenging to spot on candlestick charts.

When does the Concealing Baby Swallow act as a bullish reversal as opposed to a bearish continuation pattern?

In an uptrend, if the pattern forms against a strong support level and is followed by a bullish candle, it signals a potential bullish reversal. The confirmation comes from the next candlestick after the pattern, which should be bullish. If the pattern occurs within a downward impulse wave of a downtrend, it is likely to play out as a bearish continuation pattern. This is because it aligns with the trend direction.

How to trade the Concealing Baby Swallow pattern in an uptrend as opposed to range market?

The pattern can mark the end of a downswing in a range market. Confirm with a bullish candle, go long at its close, set a stop loss below the lower boundary, and target profits before the upper boundary. Look for the pattern at the end of a pullback, especially near a support level. Confirm with a bullish candle and go long at its close. Place a stop loss below the swing low and target profits before the next resistance level.