Concealing Baby Swallow Candlestick Pattern

The concealing baby swallow is a bearish reversal Japanese candlestick pattern that occurred eight times in the crypto, forex, and stock markets using daily bars over the last 21 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

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 Identification (STRR)

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 pattern must occur in a downtrend.

The concealing baby swallow pattern occurred on the Star Equity Holdings 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 Bearish Reversal Trade Setup (THM)

Let’s review the baby swallow candlestick patterns one more time 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.

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)

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

  • 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.

Concealing Baby Swallow Bullish Reversal Backtest Results

cryptoforexstock
pattern_nameconcealing baby swallowconcealing baby swallowconcealing baby swallow
pattern_categorybullish reversalbullish reversalbullish reversal
pattern_bars444
required_trenddowntrenddowntrenddowntrend
traded_asbullish reversalbullish reversalbullish reversal
stop_bar_typelowlowlow
entry_bar_typehighhighhigh
risk_reward0.00.01
timeframe2015-20212010-20212000-2021
bar_perioddailydailydaily
total_tickers39513516952
pattern_tickers0.00.04
patterns0.00.08
trades0.00.01
confirm_perc0.00.00.12
wins0.00.00
losses0.00.01
win_perc0.00.00.0
avg_win_bars0.00.00.0
avg_loss_bars0.00.00.0
cons_wins0.00.00
cons_losses0.00.01
edge0.00.0-1.0
cryptoforexstock
pattern_nameconcealing baby swallowconcealing baby swallowconcealing baby swallow
pattern_categorybullish reversalbullish reversalbullish reversal
pattern_bars444
required_trenddowntrenddowntrenddowntrend
traded_asbullish reversalbullish reversalbullish reversal
stop_bar_typelowlowlow
entry_bar_typeclosecloseclose
risk_reward0.00.04
timeframe2015-20212010-20212000-2021
bar_perioddailydailydaily
total_tickers39513516952
pattern_tickers0.00.04
patterns0.00.08
trades0.00.08
confirm_perc0.00.01.0
wins0.00.02
losses0.00.06
win_perc0.00.00.25
avg_win_bars0.00.00.0
avg_loss_bars0.00.00.5
cons_wins0.00.02
cons_losses0.00.02
edge0.00.00.25

Concealing Baby Swallow Bearish Continuation Backtest Results

cryptoforexstock
pattern_nameconcealing baby swallowconcealing baby swallowconcealing baby swallow
pattern_categorybullish reversalbullish reversalbullish reversal
pattern_bars444
required_trenddowntrenddowntrenddowntrend
traded_asbearish continuationbearish continuationbearish continuation
stop_bar_typehighhighhigh
entry_bar_typelowlowlow
risk_reward0.00.01
timeframe2015-20212010-20212000-2021
bar_perioddailydailydaily
total_tickers39513516952
pattern_tickers0.00.04
patterns0.00.08
trades0.00.06
confirm_perc0.00.00.75
wins0.00.04
losses0.00.02
win_perc0.00.00.667
avg_win_bars0.00.04.75
avg_loss_bars0.00.013.0
cons_wins0.00.02
cons_losses0.00.01
edge0.00.00.337
cryptoforexstock
pattern_nameconcealing baby swallowconcealing baby swallowconcealing baby swallow
pattern_categorybullish reversalbullish reversalbullish reversal
pattern_bars444
required_trenddowntrenddowntrenddowntrend
traded_asbearish continuationbearish continuationbearish continuation
stop_bar_typehighhighhigh
entry_bar_typeclosecloseclose
risk_reward0.00.01
timeframe2015-20212010-20212000-2021
bar_perioddailydailydaily
total_tickers39513516952
pattern_tickers0.00.04
patterns0.00.08
trades0.00.07
confirm_perc0.00.00.88
wins0.00.05
losses0.00.02
win_perc0.00.00.714
avg_win_bars0.00.04.4
avg_loss_bars0.00.014.0
cons_wins0.00.02
cons_losses0.00.01
edge0.00.00.424

Concealing Baby Swallow Mean Reversion Backtest Results

cryptoforexstock
pattern_nameconcealing baby swallowconcealing baby swallowconcealing baby swallow
pattern_categorybullish reversalbullish reversalbullish reversal
pattern_bars444
required_trenddowntrenddowntrenddowntrend
traded_asbearish mean reversionbearish mean reversionbearish mean reversion
stop_bar_typeatratratr
entry_bar_typepattern_highpattern_highpattern_high
risk_reward0.00.01
timeframe2015-20212010-20212000-2021
bar_perioddailydailydaily
total_tickers39513516952
pattern_tickers0.00.04
patterns0.00.08
trades0.00.01
confirm_perc0.00.00.12
wins0.00.00
losses0.00.01
win_perc0.00.00.0
avg_win_bars0.00.00.0
avg_loss_bars0.00.00.0
cons_wins0.00.00
cons_losses0.00.01
edge0.00.0-1.0
cryptoforexstock
pattern_nameconcealing baby swallowconcealing baby swallowconcealing baby swallow
pattern_categorybullish reversalbullish reversalbullish reversal
pattern_bars444
required_trenddowntrenddowntrenddowntrend
traded_asbullish mean reversionbullish mean reversionbullish mean reversion
stop_bar_typeatratratr
entry_bar_typepattern_lowpattern_lowpattern_low
risk_reward0.00.02
timeframe2015-20212010-20212000-2021
bar_perioddailydailydaily
total_tickers39513516952
pattern_tickers0.00.04
patterns0.00.08
trades0.00.05
confirm_perc0.00.00.62
wins0.00.02
losses0.00.03
win_perc0.00.00.4
avg_win_bars0.00.09.0
avg_loss_bars0.00.04.67
cons_wins0.00.01
cons_losses0.00.01
edge0.00.00.2

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.

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