Medical Community suggests babies should be swaddled with their arms UP.

A newborn’s natural position is with its arms bent at the elbow and legs flexed. Wrap them like this, making no attempt to straighten them out before you start. Above all, leave their hands where they can suck their thumb if they want to. SOURCE: Penelope Leach, PhD, research psychologist specializing in child development. “Your Baby and Child” Pg 18 - The Newborn 2003

When Swaddled, Babies sleep better

Studies show that swaddling assists babies in sleeping better & longer. The study, "Influence of Swaddling on Sleep and Arousal Characteristics of Healthy Infants" evaluated whether or not swaddling influences infants' arousal to noise. The results showed swaddling increased infants' sleep efficiency &non-rapid eye movement (NREM) sleep. SOURCE: “Influence of Swaddling on Sleep and Arousal Characteristics of Healthy Infants” American Academy of Paediatrics May 5, 2005

Swaddled babies soothe better

Thumb sucking is a healthy self-comforting pattern. A fetus sucks its thumb. Newborns are equipped with the hand-to-mouth or Babkin reflex. When upset or trying to settle down, the baby will resort to this as a way of calm themselves down. The pattern seems built in. Babies who make use of it are easier to live with. SOURCE:- Dr T Berry Brazelton, MD author of "thouchpoints - The Essential Reference"

WHY does your baby need to self-soothe?

The overall goal for young infants and children is to help them self-soothe. Self-soothing is the process young infants and children acquire over the first few years of life to help them to calm their nervous systems to facilitate settling for sleep. The thought of having a ten year old in your bed each night to help them settle for sleep is not so appealing for most people.

Self-soothing is important to help children calm, if needed across the day as well as for many skills required later on in life, and does not seem to have a link with attention.

Once you've established some good sleep patterns, when he/she is awake they can then start to explore the world around them and the people in it. SOURCE: Emily Saunderson - Occupational Therapist. Founder & Director.. Kickstart Kids Therapy, Randwick NSW

Non-nutritive sucking is a natural reflex in young babies

Sucking has a soothing and calming effect. The need to suck is present in all infants. Some infants suck their thumbs even before they are born, and some will do it right after being born. SOURCE: American Academy of Paediatrics, Article "Thumb Sucking and Pacifiers" 2000

Thumb sucking is one of the most common habits of children. Approximately 50 to 87 percent of children suck their thumbs. The habit starts early in life, with 90 percent of newborns showing some form of hand sucking by 2 hours of age. SOURCE: Children's Hospital Boston (the primary paediatric teaching hospital of Harvard Medical School), Article 2006

The importance of sucking for infant self-soothing has been demonstrated in a variety of studies. For example, pacifier use or thumb sucking is often offered as a way for babies to tolerate the pain of needle punctures or other painful medical procedures.

Non-nutritive sucking has been found to help the development of preterm babies, and in all babies, thumb or pacifier sucking is associated with self-calming. Thumb sucking may increase when your baby is tired or unhappy, as well as when she is unwell or teething. The thumb, therefore, provides your baby with a way of calming herself down- providing her with important experience in managing her emotions. SOURCE: Anita Sethi, Ph.D "Baby Steps: Thumbs Up!"