The Advance Block Japanese Candlestick Pattern is an average 3 candle bearish reversal pattern occurring during an up trend. Like all Japanese Candlestick patterns, it can be used in Forex, Futures, Options, and Stock trading. The opposite signal pattern is the Three Stars In The South pattern.
This may look a little like Three White Soldiers on first glance, but looking carefully you can see some differences.
The first candlestick is a long white candle; a continuation of the upward trend.
The second candlestick is also white, but unlike the Three White Soldiers, the length or magnitude of the candle is lower making a smaller body, and the upper wick is growing in length.
The third candlestick is white again, but with a much smaller body and longer upper wick.
Trading Rules:
The upward trend has been fairly consistent for a good period of time.
A long white candle continues the up trend (the first candlestick in the pattern).
The second candlestick opens in the first day’s body, trades higher, and closes above the closing of the first day leaving a longer upper shadow and a smaller body than the first day.
The third candlestick opens in the second day’s body, trades higher, and closes above the closing of the second day leaving a longer upper shadow and a smaller body that the second day.
Signal Strengtheners:
The longer the upper wicks and smaller the bodys of the second and third day consecutively, the stronger the reversal signal.
The higher the price, or the more overbought the market, the stronger the reversal signal.
The fourth day would confirm the reversal potential if it shows a black candlestick, a large gap down, or by a lower close.
General Analysis and Investor Sentiment:
After an up trend or a bounce up during a long downtrend, the Advance Block will show itself with an initial strong white candle day. However, unlike the Three White Soldiers, each following day becomes less strong. If the second and the third candlesticks (particularly the third) show signs of weakening, this means that the Bulls are weakening and longs must consider protecting their positions by taking profits. If the bulls try to take the prices up, the bears step in and take them back down. After three days of waning strength, the Bears should confirm the reversal.
Longs need to be especially careful about the Bearish Advance Block Pattern during a mature up trend. Signs of weakening are the progressively smaller white real bodies or the relatively longer upper wicks on the second and third white candlesticks.
The Bearish Advance Block Pattern is not normally a top reversal pattern, but it has the potential to precede a meaningful price decline. This pattern is more important at higher price levels when the market is overbought. It suggests to liquidate long positions but it might be a bit early for short positions.
