What is an Advance Block?

[Sam Button]

[Justin Freeman]

an advance Block is a Candlestick pattern that’s typically interpreted as a bearish reversal pattern. It’s made up of three candlesticks and whilst having a high frequency of occurrence is not particularly reliable, that is, the bearish reversal does not always happen. The Advance Block pattern is relatively common and is made up of three candlesticks. When you are identifying the pattern, the characteristics of the three candles are more important than the previous market action. In the above diagram the Advance Block is preceded by a downward market trend. It can, however, occur as part of an upward trending market. The key features to look for are: The three white candles have progressively shorter ‘real’ bodies; Each of the white candles has a higher close; The upper tails of the candles become longer in each subsequent time interval; The bottom level of the ‘real’ body of each candle lies within the real body of the previous candle. As mentioned, the Advance Block occurs relatively frequently but is relatively unreliable. The high frequency is explained by the fact that it can be preceded by both rising and falling markets whereas some candle sticks occur in conjunction with just one of these two trends. Extending that thinking it could therefore be worth analyzing the assets you are trading and establishing if the Advance Block success rate is improved when markets are heading in a particular direction. Another, possible feature to consider is the length of the upper tails of the candles. Established thinking is that the higher the tail on the last candle the stronger the signal. Again, after research you will be able to confirm if the instruments you are trading do (or do not) verify this.

Confirmation of Trend Reversal to the down side

  Confirmation of a break to the down side is given when price moves lower than the mid-point of the real body of the first of the three candles. The nature of this price move being another indicator of the strength of the reversal. Given that the three candles are effectively representing bulls that are running out of steam then any strong bearish thrust should be considered significant. If you do enter into a short position, standard positioning of stop-losses is just above the upper tail of the third candle. Any break to price levels higher than this tail is a sign that the Advance Block signal was incorrect. Advance Block patterns will generally be found in markets where there are a lot of short-term trend reversals. Understanding what market conditions they are illustrating is potentially more important than using them as signals to risk capital on a trade. Basing a day-trading trading strategy solely off anyone pattern is a good way to lose money and doing so with the Advance Block would be particularly brave or foolish. Your trading strategy should incorporate many other signals and even then trade management during the life of the trade will be a major determinant of long-term success or failure. One other suggestion, particularly if you are trading something for the first time, or are completely new to trading in general, is to remember the benefits of testing ideas using a demo account.

[Patricia]

Hi Sam,

Thanks for asking.

An advance block occurs in uptrends, and is a reversal pattern featuring three white candlesticks. Every candle in the sequence should be smaller than the preceding one with the last two containing high wicks. The first candle assumes a long bullish shape as traders expect the continuation of a positive trend.
As the momentum persists, however, investors start fearing a correction, hence, decreasing the buying pressure. Though the positive sentiment remains, the market’s growth is obstructed by the release of selling pressure. Longs, particularly, should watch the advance block in a mature uptrend to safeguard their positions when the rally slows down.
The signs of a diminishing market include shrinking real bodies and elongated upper shadows in the last two candles. With the waning bullish influence, the upper wick tells you a dive is underway. While it doesn’t always signify a top reversal, the advance block could precede a significant dip.
When it occurs at higher price stages, the pattern suggests the liquidation of long positions because it’s too soon for short positions.
 

[Nick R]

Hi Sam,

The advance block refers to a bearish reversal pattern that indicates that a current uptrend is going to change direction. The pattern consists of three candles. 

The first candle is a white candle that appears as a long line during an uptrend. The first candle can be any of the following - White Candle, Long White Candle, Opening White Marubozu, Closing White Marubozu or White Marubozu.

The second line can be both a long or a short line and can be created by any white candle. This candle opens in the range of the first candle body and closes above it.

The third candle, just like the second one, can also be short or long and can be represented by any white candle but it opens in the range of the body of the second candle and closes above it.

In this pattern, each successive candle body is smaller than the previous one.