The Deliberation pattern stands out as a powerful bearish reversal formation among the numerous candlestick patterns that traders rely on. This pattern, consisting of three candles, provides valuable insights into market sentiment and potential price reversals.

In this comprehensive guide, we will explore the key characteristics, identification guidelines, and statistical performance of the Deliberation pattern.

What is the Deliberation Pattern?

The Deliberation pattern is a three-line bearish reversal candlestick formation. It is formed by three green candles, each with specific criteria. The first and second candles of the pattern have long bodies, indicating significant upward momentum.

However, The third candle has a shorter body than the previous two candles. This shorter body suggests a weakening of the bulls’ control over the market.

To identify the Deliberation pattern, it is essential to consider each candle’s opening and closing prices. The opening price of the second candle should be higher than the opening price of the first candle. Similarly, the closing price of the second candle should also be higher than the closing price of the first candle.

The opening price of the third candle may be slightly lower or higher than the closing price of the second candle, but the closing price of the third candle should be above the previous closing price.

The Deliberation Pattern in Action

To better understand the Deliberation pattern, let’s take a closer look at an example. Imagine a scenario where the market has been in an uptrend for some time. The first two candles of the Deliberation pattern appear as strong bullish candles, with long bodies indicating the dominance of the bulls. However, the third candle, although still green, has a smaller body, suggesting a loss of momentum.

The Deliberation pattern often acts as a support zone due to the presence of three consecutive white candles. However, to confirm the pattern, the bears need to push the price below the opening price of the first candle. It is important to note that immediate price drops following the pattern are relatively rare. Instead, the market often “deliberates” for a few candles, considering its next direction.

Characteristics of the Deliberation Pattern

While the Deliberation pattern shares similarities with the Advance Block candle pattern, it has some distinct characteristics. Unlike the Advanced Block pattern, which focuses on the upper shadow, the Deliberation pattern emphasizes body height. The Deliberation pattern has also shown better performance as a bullish continuation pattern compared to the Advance Block pattern. It ranks second in terms of bullish continuation patterns, although its overall performance falls towards the lower end of the spectrum.

Statistical Performance of the Deliberation Pattern

To gauge the effectiveness of the Deliberation pattern, it is crucial to analyze its statistical performance. According to extensive testing and analysis, the Deliberation pattern has shown a 77% likelihood of acting as a bullish continuation pattern. This indicates that the pattern tends to continue the existing uptrend rather than a bearish reversal, contrary to its theoretical interpretation.

When it comes to specific performance statistics, the Deliberation pattern demonstrates various outcomes depending on market conditions. In bear markets, the best average move after a downward breakout is a drop of approximately 6.72% within ten days. On the other hand, in bull markets, the highest performance rank is achieved after a downward breakout, with the pattern ranking sixth among all candlestick patterns.

Identifying the Deliberation Pattern

To successfully identify the Deliberation pattern, traders need to consider specific characteristics and guidelines. Here are the key factors to look for:

1. Number of Candle Lines: The Deliberation pattern consists of three candle lines.
2. Price Trend Prior to the Pattern: The pattern should appear after an established uptrend.
3. Configuration: Look for three green candlesticks, with the first two having tall bodies. The third candle should have a smaller body, opening near the previous close and closing above it.

Trading Strategies and Tips

To maximize the potential of the Deliberation pattern, traders can incorporate various strategies and tips. Here are a few noteworthy considerations:

1. Focus on Deliberations near the Yearly Low: Deliberation patterns that appear within a third of the yearly low tend to perform the best.
2. Select Tall Candles for Optimal Performance: The use of tall candles within the Deliberation pattern has shown improved performance.
3. Continuations near the Yearly High: Deliberation patterns appearing within a third of the yearly high often act as continuations rather than reversals.

Conclusion

The Deliberation pattern is a powerful bearish reversal candlestick formation that provides valuable insights into market sentiment and potential price reversals. While it may deviate from its theoretical interpretation, the statistical performance of the Deliberation pattern showcases its significance as a bullish continuation pattern.

Traders can effectively utilize the identification guidelines and trading strategies discussed in this guide to incorporate the Deliberation pattern into their technical analysis toolkit. Remember, thorough analysis and risk management are crucial when using any candlestick pattern in trading decisions.