The Advance Block Candlestick Pattern was first identified and officially used in the market by Steve Nison in his book “Japanese Candlestick Charting Techniques” first published in 1991.
What is the Advance Block Candlestick Pattern?
The advance block candlestick pattern is a bearish reversal pattern that occurs during an uptrend. It is quite similar to the bullish three white soldier candlestick pattern, as it also features three long candles with consecutively higher closes than the previous candles. It demonstrates how bears gradually take control of the market, initiating new falls. However, the advance block pattern only serves as a warning of a slowing uptrend and does not necessarily predict a reversal in trend.
The pattern is composed of three candlesticks with shorter bodies and long upper shadows, which indicates a significant increase in supply that halts and pushes down the price. It appears during an uptrend and signals a trend reversal to a new downtrend, making it one of the most reliable bearish patterns that generates many sell signals.
How can the Advance Block candlestick Pattern be identified?
The Advance Block pattern is a signal that appears after a significant price increase, indicated by multiple green candlesticks on the chart. To be considered an Advance Block pattern, the following characteristics must be present:
- The bodies of all three candles must be shorter than the previous candle.
- The first candle must be a long bullish one.
- The second candle must open within the body of the first candle and close above its close and high.
- The third candle must open within the body of the second candle and close above its close.
- The opening of the second and third candles must be within the previous candle’s body.
- The close of the candles must be far from their respective highs.
- The wicks of the candles must increase in size progressively.
What information does the pattern convey to traders?
The Advance Block Candlestick Pattern is a bearish reversal indicator that shows the shift from a bullish market to a bearish one. It is characterized by the formation of three consecutive bullish candlesticks with shorter bodies and upper wicks, indicating that bears are pushing prices down from the highs. This pattern suggests that the bullish trend is weakening, but it does not necessarily signal an immediate reversal. Instead, it is more effective in predicting pullbacks during larger-scale downtrends or temporary uptrends.
It is important to note that selling long positions can be considered after the pattern formation, but short positions should only be taken after confirmation which is provided by the fourth day candle. A confirmation is given when the fourth day candle is a black candle with a downtrend gap or a lower closing prices.
Advance Block Candlestick Pattern Strategy
Bearish Advance Block Candlestick Pattern
- It indicates a bearish trend reversal.
- The smaller second and third candlesticks indicate a slowdown in buying pressure.
- The third candlestick should close near or above the midpoint of the first candlestick.
Advance Block candlestick pattern Pros & Cons
Pros
- It indicates a bearish trend reversal.
- It can be used to enter short positions.
- It can be used to identify potential trend changes.
Cons
- It is not a very common pattern.
- It can be easily misinterpreted.
- It can be difficult to identify in some cases.
Conclusion
The Decline Block Candlestick Pattern is a bearish reversal indication that suggests a shift from a bullish market to a bearish one. It is made up of three consecutive bearish candlesticks with shorter bodies and long lower shadows, indicating a significant increase in supply that halts and pushes down the price. The pattern is best at forecasting pullbacks during larger-scale downtrend or temporary uptrends, but it is important to note that it only serves as a warning and not necessarily a reversal signal. The confirmation of a trend reversal is provided by the fourth day candle, which should be a white candle with an uptrend gap or higher closing price. The Decline Block pattern can be used to enter short positions and identify potential trend changes, but it can also be difficult to identify and easily misinterpreted.
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