Experienced traders know that using only one analysis method to understand price movements in the market is not very accurate. Therefore, they attempt to combine fundamental analysis with technical analysis tools. Among the most noteworthy techniques in technical analysis are 🎌Japanese Candlesticks. Candlestick patterns provide valuable insights into charts, market psychology, and supply-demand balance. ✍In this article, we will examine what the "Advance Block" candlestick pattern is, how it is defined, and how it can be used. We will also take a look at real market examples. Let's get started.
Topic: Advance Block
Type: Bearish
Trend direction: Reversal
Opposite pattern: Descent Block
What is the Advance Block candlestick pattern ❓
The Advance Block pattern is defined as a technical analysis model consisting of three consecutive bullish candlesticks that occur after an uptrend, signaling a possible downtrend. This pattern is usually a pullback and sometimes a reversal pattern, indicating the start of a downtrend. The picture below shows an example of the different variants of the Advance Block candlestick:
 |
| Various Types of Advance Block |
What is the structure of the Advance Block candlestick pattern ❓
The Advance Block pattern emerges when three consecutive
candlesticks meet specific criteria:
- The first candlestick is part of an uptrend and has a green (or white) body.
- The second candlestick also has a green (or white) body, and its opening price falls within the range of the previous candlestick's body, while its closing price is above the previous closing price.
- The third candlestick is also green (or white), with its opening price within the range of the previous candlestick's body, and its closing price above the previous closing price. Example image below.
 |
| The Structure of the Advance Block |
Now let's look at a real market example:👀
 |
| Advance Block Candlesticks on the SP 500 Index chart |
Why does the candlestick pattern form like this ❓
The Advance Block candlestick pattern is a formation consisting of three consecutive bullish candlesticks that begin with a strong bullish candle. The characteristics of these candlesticks reveal changes in market psychology and indicate possible signs of a trend reversal or potential retracement. This image provides the best example of the Advance Block pattern forming on the Coca-Cola Company stock chart, indicating a pause in the uptrend and a potential retracement:
 |
| Advance Block Pattern in Coca-Cola Company's stock chart |
The first candlestick, by showing an impressive rise,
indicates that the market is firmly under the control of the bulls. Being long
and having a green (or white) body, it reflects strong buying pressure in the
market.
However, the second candlestick starts below the closing of
the first bullish candlestick, signaling a slowdown in the upward momentum.
Some bullish traders consider this as a negative sign because it is the first
indication of weakness. However, the second candlestick still closes above the
previous closing price and maintains a green (or white) body. Thus, the belief
that the bulls are still in control persists.
On the other hand, the third candlestick opens just below
the second candlestick's opening and tries to attract bulls in the market, but
it closes above the previous closing price. Now, signs of weakness become more
apparent. The candle bodies are getting shorter, indicating increased
indecision in the market. The candles form with lower openings inside the
previous body, and the upper shadows are progressively elongating while the
difference between the opening and closing prices diminishes. All these signs
expose that the uptrend is losing its strength. Bulls have now started to lose
the 🤺battle because the pattern is completed with the last candlestick, which
signifies a potential reversal or retracement.
How to trade the Advance Block candlestick pattern ❓
🕘Waiting for the candlestick pattern to fully form is our first step. The formation is not complete until the closing of the third candlestick, so we need to be patient. Afterward, we consider identifying the confirmation level and applying stop-loss and take-profit orders. The confirmation level is determined as the midpoint or the opening point of the last green (or white) body, and for the formation to be confirmed, prices need to break below this level. At this point, we can enter a sell order. First, let's take a look at the following image:
 |
| Trading with Bearish Advance Block Candlesticks |
When setting the stop-loss level, we should choose
the higher of the two highest prices from the last two days. Placing our
stop-loss just above the peak of the third candlestick in the formation will
help us avoid being stopped out prematurely if the uptrend continues, while
also providing a safety margin against a sudden reversal.
When determining the take-profit points, the low of
the first candlestick that forms the pattern is often chosen as the target.
Additionally, using support and resistance levels, trend lines, and Fibonacci tools would be a more reasonable option. Let's also give an example image from the real market. The following image presents an example of trading with the Advance Block candlestick pattern in Taiwan Semiconductor Manufacturing Company Ltd. Stock:
 |
| Bearish Advance Block Candlesticks in TSM stock chart |
Note. Although there are some similarities between
the "Advance Block" candlestick pattern and the "Three White Soldiers" candlestick pattern, they are never the same. There are significant differences
between the patterns. Specifically, the "Three White Soldiers" consists of
rising candles with filled bodies, indicating a continuation of an uptrend. On
the other hand, in the "Advance Block" pattern, the second and third
candlesticks start inside the body of the previous candlestick, and the third
candlestick has the longest shadow. The most striking difference is that this
pattern is considered a temporary retracement or a reversal formation.
Information. The opposite of the Advance Block candlestick pattern is
the Descent Block candlestick pattern.