Deliberation Candlestick Pattern
Candlestick Charts are one of the most prevailed methods of charting price actions. Single candlesticks or groups of candlesticks form Candlestick patterns. Each candlestick refers to a trading session, and its color indicates how the price closed during that session. One such candlestick pattern is the Deliberation candlestick pattern, also known as a Stalled candlestick.
A deliberation pattern is a trend reversal pattern of three bullish candlesticks arranged in a specific sequence, forecasting a bearish reversal. The pattern signifies the exhaustion of the uptrend, just like the Bearish Advance Block formation does.
A Deliberation pattern suggests indecision in the market. It may indicate that traders have limited ability to profit quickly from short-term trades.
Anatomy of Deliberation Candlestick Pattern
Three bullish candlesticks should meet specific criteria to form a Deliberation candlestick pattern. Here is the anatomy of the pattern.
First Candlestick:
It is the long bullish candlestick in an uptrend.
Second Candlestick:
The second candle must open above the previous candle’s open price and close above the last candle’s high price.
Third Candlestick:
The last candlestick ought to be bullish and have a smaller real body than the other two candlesticks. It has the same opening price. Moreover, it can close either above the high of a previous candlestick or below the high. The third candle opens with a gap in the direction of the trend.
Bearish deliberations do not indicate an immediate reversal, only an imminent exhaustion of the current trend. Long positions can be sold at this point, but short positions should not be opened yet.
Confirmation of Reversal
A stalled pattern does not necessarily indicate a bearish reversal. A fourth-day candle is required to confirm a trend reversal. A black candle following the deliberation candlestick pattern with a downward gap or a lower close will confirm the reversal. Traders often take this as an indication that they should consider reducing their losses.
Reversals can occur very quickly, often within a day, but they can also happen over a more extended period, such as weeks. Technical analysts look for reversal patterns throughout the day as indicators of how to change trading strategies.
Trading Psychology Behind Deliberation Pattern
The bulls are pushing the price up, as depicted by the two first bullish candles. Two first pattern’s lines create a support area. In the third session, they form a short white candle, signaling that the bears counterattack.
Three bullish candlesticks within a stalled candlestick pattern indicate buying pressure. The first bullish candle represents high momentum for buyers. In the second trading session, the buyer momentum will drop. In the third/final session, the formation of a small candlestick causes a significant drop in buyer momentum.
This suggests that buyers’ power decreases, and sellers’ power increases over time. At the third trial, buyers lose their bullish momentum, and sellers dominate the market. As a result, prices fall.
Some traders expect stalled patterns to work as soon as they appear which is why they are much debated and often misunderstood. It seldom occurs that a price decline instantly follows a Deliberation pattern. Deliberation, the name of the pattern, describes the market situation well. The market usually “deliberates” during 2-4 candles, following a pattern about which direction to go.
Optimal Working Conditions for Deliberation Candlestick Pattern
You should always add confluences to increase the odds of winning this candlestick pattern because not all patterns are worth trading. You will not make a profit if you sell all candlestick patterns on your chart.
The two confluences you can add to your trading strategy are:
Resistance zone
The formation of a deliberative pattern in the support zone turns an uptrend into a downtrend because the confluence of both technical tools has been merged.
Overbought Regions
If a contemplation pattern forms in the overbought area (RSI > 70), the likelihood of a bearish trend reversal increases.
An example of a Deliberation candlestick pattern in a chart is shown above. The high trading volume forms the first two candlesticks on the chart and strengthens the support zone. The third candle is classified as a short white candle and includes a lower trading volume than the previous two. A short body indicates indecision (deliberation) about the direction that lasts for three days. The “deliberation” of the market is within the area drawn by the lines of the last pattern. On day 4, the market opens below the closing price of the 3rd pattern candlestick. If the trade volume is very high and the bears are in complete control, you will see a long black candlestick.
Bottom Line
Deliberation candlestick Pattern should only be traded after confirmation in the form of the long black candle with a downward gap or lower close following the pattern.
By analyzing deliberation patterns, leading traders and investors can predict future markets in higher time frames. For example, long-term analysis can be forecasted on a weekly timeframe.
