Concealing Baby Swallow

The concealing baby swallow is a four-bar bearish reversal Japanese candlestick pattern that occurred eight times in the crypto, forex, and stock markets using daily bars over more than 20 years.

In other words, developing any statistically significant trading strategies is impossible as it occurs too infrequently.

But we’ll discuss it anyway because I’m on a mission to analyze every Japanese candlestick pattern.

I’ll also give you my thoughts on how this price action will play out based on my analysis of over 100+ Japanese candlestick patterns.

What Is a Concealing Baby Swallow Candlestick Pattern?

Concealing Baby Swallow Candlestick Pattern Illustration © Analyzing Alpha
Concealing Baby Swallow Candlestick Pattern Illustration

The concealing baby swallow is a rare four-candle pattern that supposedly lets traders know of an impending bullish reversal.

With this in mind, let’s learn how to identify this ultra-rare pattern.

How to Identify the Concealing Baby Swallow Candlestick Pattern

Concealing Baby Swallow Candlestick Pattern on the Star Equity Holdings (STRR) August 15th, 2007 daily chart
Concealing Baby Swallow Candlestick Pattern on the Star Equity Holdings (STRR) August 15th, 2007 daily chart

The following are the requirements for a valid bearish belt hold pattern:

  • The first candle is a black marubozu with little to no shadows.
  • The second candlestick is also a black marubozu.
  • The third candle is bearish that opens gapping down.
  • The third candle has an upper wick that extends into the prior candle’s real body.
  • The fourth candle is black, which completely engulfs the third candle.
  • The concealing baby swallow must occur in a downtrend.

The concealing baby swallow pattern occurred on the Star Equity Holdings (STRR) daily chart on August 15th, 2007.

The pattern is in a downtrend, satisfying that requirement. The first candle is a black marubozu, which closes lower with little to no upper or lower shadow. The second candle is also a black marubozu with tiny wicks. The third day has a downward gap, with the trading range moving into the previous day before the selling pressure pushes the close below the open. The fourth candlestick completes the pattern by completely engulfing the prior candle.

With the four candlesticks, or should I stay stars aligning (yes, it’s that rate), how do most market participants following traditional trading practices execute on this pattern?

How to Trade the Concealing Baby Swallow Candlestick Pattern

Concealing Baby Swallow Bullish Reversal Trade Setup on the Tower Hill Mines (THM) June 21st, 2013 daily chart
Concealing Baby Swallow Bullish Reversal Trade Setup on the Tower Hill Mines (THM) June 21st, 2013 daily chart

Let’s review the baby swallow candlestick patterns once more, as it’s somewhat involved.

We see the concealing baby swallow “bullish reversal pattern” on the candlestick charts of International Tower Hill Mines (THM) on June 21st, 2013.

The price is in a downtrend. The first bar is a large black marubozu. The second candle is also a bearish marubozu. The third bearish candle’s upper shadow enters the previous candle – barely. And the fourth candle fully engulfs the prior trading range.

With the signal set, traders enter long on the break above the high of the fourth candlestick with a stop loss above the first candlestick’s high.

We can see the pattern was never confirmed for THM.

Does the Concealing Baby Swallow Work? (Backtest Results)

I backtested the concealing baby swallow on the daily timeframe in the crypto, forex, and stock markets using the following rules:

  • A close above the 50-day SMA constitutes an uptrend.
  • I tested risk-reward ranges from 1 to 5.
  • The optimal risk-reward ratio is selected using profit per bar.
  • Entry and exits are discussed in the how-to trade section above.
  • Confirmation must occur within three days of the pattern signal.

Similar Candlestick Patterns

Few candlestick patterns look similar to the exceedingly rare concealing baby swallow. A few related patterns still confuse many technical analysts.

Bullish Breakaway vs. Concealing Baby Swallow

Bullish Breakaway Candlestick Pattern Illustration © Analyzing Alpha
Bullish Breakaway Candlestick Pattern Illustration

The bullish breakaway candlestick pattern is a rare five-bar bullish reversal pattern. The first candle is a tall black candle, followed by another that opens lower leaving a gap between the two bodies. The third candle has a lower close. The fourth candle is black and closes lower. The fifth candle is a tall white candle that closes within the body of the first two candles.

The bullish breakaway and concealing baby swallow get confused because they are both extremely rare multiple-candle bullish reversals.

Matching Low vs. Concealing Baby Swallow

Matching Low Candlestick Pattern Illustration © Analyzing Alpha
Matching Low Candlestick Pattern Illustration

The matching low candlestick pattern is a two-bar bullish reversal pattern with two bearish candles with equal closes. The first two marubozu candles in the concealing baby swallow are said to form a matching low pattern often.

The Bottom Line

The bottom line is that the concealing baby swallow occurs so infrequently that it doesn’t make sense to scan for it or trade it due to a lack of statistical significance.

But from a price action perspective, that much bearish activity in a row would likely lead to a short-term mean-reversion bounce, especially in the stock market, that’s typically mean reverting in the short term and biased to the upside in the long.

Instead of studying ultra-rare candlestick patterns, check out my backtest to learn which candlestick pattern is most reliable.

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