Thomas Bulkowski’s successful investment activities allowed him to retire at age 36. He is an internationally known author and trader with 30 years of stock market experience and widely regarded as a leading expert on chart patterns. His four books, including the best selling Encyclopedia of Chart Patterns, have been translated into seven languages. He may be reached at

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Bulkowski's Deliberation

Market

Industrials (^DJI):

Transports (^DJT):

Utilities (^DJU):

Nasdaq (^IXIC):

S&P 500 (^GSPC):

As of 02/07/2012

12,878 33.07 0.3%

5,323 -10.92 -0.2%

452 2.11 0.5%

2,904 2.09 0.1%

1,347 2.72 0.2%

YTD

5.4%

6.0%

-2.7%

11.5%

7.1%

Tom's Targets Overview: 02/03/2012

13,100 or 12,400 by 02/15/2012

5,500 or 5,150 by 02/15/2012

470 or 440 by 02/15/2012

3,100 or 2,800 by 02/15/2012

1,375 or 1,300 by 02/15/2012

Test Portfolios and CPI

Indus. strength: 2.4%

Mutt Losers: None YTD

Mutt Winners: 2.5%

Wilder RSI: None YTD

CPI:

on 12/20/2011

In my book, Encyclopedia of Candlestick Charts, pictured on the right, I explore the entire range of candlestick patterns from abandoned babies to windows (not exactly A to Z, but you get the idea), in both bull and bear markets, using almost 5 million candle lines in the tests.

The book takes an in-depth look at 103 candlestick patterns and reports on behavior and rank (3 types: reversal rate, frequency, and overall performance), identification guidelines, performance statistics (tables of general statistics, height, and volume), trading tactics (tables of statistics on reversal rates and performance indicators), and wraps each chapter with a sample trade. I share a sliver of that information below. If you like what you read here, then you will love the book. Help support this website and buy a copy by clicking on the above link.

The deliberation has a lot in common with the advance block candle pattern. Both use three white candles in an upward price trend. However, the deliberation has requirements on body height, but none on the upper shadow like the advance block.

The deliberation works better than the advance block, too, ranking 2nd as a bullish continuation pattern, but the overall performance is near the end of the pack. Its frequency rank of 48 means you should be able to find many examples of the deliberation in a historical price series (unreal time) or real time.

Important Results

Discussion

Identification Guidelines

Three Trading Tidbits

Example

Other Examples

Deliberation: Important Results

Theoretical performance: Bearish reversal

Tested performance: Bullish continuation 77% of the time

Frequency rank: 48

Overall performance rank: 93

Best percentage meeting price target: 36% (bull market, up breakout)

Best average move in 10 days: -6.72% (bear market, down breakout)

Best 10-day performance rank: 6 (bull market, down breakout)

All ranks are out of 103 candlestick patterns with the top performer ranking 1. "Best" means the highest rated of the four combinations of bull/bear market, up/down breakouts.

The above numbers are based on hundreds of perfect trades. See the glossary for definitions.

Deliberation

Deliberation Discussion

The deliberation candlestick is supposed to act as a bearish reversal, but testing shows that it acts as a bullish continuation pattern 77% of the time. That is quite a substantial change from theory, but the way I measured it is probably to blame. It is far more likely that price will close above the top of the pattern since that is where the last candle line leaves it than it would be for price to drop all the way down and close below the bottom of the candle pattern.

The overall performance rank is 93 out of 103 candles. A rank of 1 is the best performance, so this falls well short. Drilling down through the data we find that the best average move is a drop of 6.72% ten days after the breakout in a bear market. I consider moves above 6% to be good, so this does well. The highest performance rank is 6th after a downward breakout in a bull market. Again, that is measured after 10 days and is a comparison against the other 102 candle types.

Deliberation Identification Guidelines

Characteristic	Discussion
Number of candle lines	Three.
Price trend leading to the pattern	Upward
Configuration	Look for three white candlesticks in an upward price trend. The first two are tall bodied candles but the third has a small body that opens near the second day's close. Each candle opens and closes higher than the previous one.

Three Trading Tidbits for Deliberation

If you want a few bones from my Encyclopedia of candlestick charts book, here are three to chew on. The pages refer to the book where the tips appear.

Deliberation candles that appear within a third of the yearly low perform best -- page 195.
Select tall candles for the best performance -- page 196.
Deliberations within a third of the yearly high act as continuations most often -- page 198.

Deliberation Example

The deliberation candlestick on the daily scale

The chart shows a deliberation candlestick pattern, circled in red, in an upward price trend. The first two candles have tall bodies but the third line has a small body. Each of the candles is supposed to open and close higher, but a higher close is tough to see on the third day. The last day should also open near the prior close.

This deliberation acts as a reversal of the upward price trend because price closes below the bottom of the candle pattern first, not the top, plus, it appears in an upward price trend.

Notice that the trend stops when it hits overhead resistance near the top of the candle pattern. I show that as a horizontal green line. That is the way it goes sometimes.

-- Thomas Bulkowski