The “Advance Block” is a bearish candlestick pattern that occurs during an uptrend and suggests potential weakness or exhaustion in the bullish momentum. This pattern is not as well-known as some other candlestick patterns, but it can provide traders with valuable insights into the market sentiment. Here’s how the Advance Block pattern is formed:
- First Candlestick: The first candlestick is a long white (or green) candle, representing a strong bullish day. It indicates that the bulls have control, pushing the price higher. The opening price is typically near the low, and the closing price is near the high.
- Second Candlestick: The second candlestick is also a white (or green) candle, but it is smaller in size compared to the first one. It opens within the real body of the first candlestick and closes higher than the first day’s close.
- Third Candlestick: The third candlestick is another white (or green) candle, even smaller than the second one. It opens within the real body of the second candle and closes higher than the second day’s close.
The Advance Block pattern suggests that the bullish momentum is weakening with each successive day, as each candle becomes smaller and closes within the previous day’s range. It reflects a possible struggle between buyers and sellers, indicating that the uptrend may be losing steam and potentially reversing.
Confirmation and Considerations:
- Decreasing Size: The key feature of the Advance Block pattern is the decreasing size of the bullish candles over the three-day period.
- Volume: Traders often look for decreasing trading volume as a confirming signal of the pattern. A decline in volume suggests diminishing enthusiasm among buyers.
- Support and Resistance Levels: Check for nearby support and resistance levels, trendlines, or moving averages. The presence of significant resistance levels can act as a potential turning point for a reversal.
- Time Frame: The Advance Block pattern can appear on various time frames, from intraday charts to daily and weekly charts. The significance of the pattern may vary depending on the time frame in which it occurs.
- Confirmation from Other Indicators: To increase confidence in the pattern, traders often use other technical indicators such as the relative strength index (RSI), moving averages, or trendlines. If these indicators also show bearish signals or divergence, it can reinforce the Advance Block pattern’s validity.
It’s important to remember that while the Advance Block pattern is a bearish signal, it’s not foolproof. Traders should consider it alongside other factors and perform thorough analysis before making trading decisions. Risk management strategies, including stop-loss orders, should also be part of any trading plan.