Understanding the Advance Block

What is the Advance Block?

The Advance Block is a bearish reversal candlestick pattern that typically occurs at the end of an uptrend. It consists of three consecutive candlesticks, each with a higher open and close than the previous one, but with decreasing bodies. This pattern indicates a potential shift in the market sentiment from bullish to bearish.

How is the Advance Block Identified?

The Advance Block pattern is identified by:

1. First Candle: A long bullish candle.
2. Second Candle: A smaller bullish candle that opens and closes higher than the first candle.
3. Third Candle: An even smaller bullish candle that opens and closes higher than the second candle but shows a clear decrease in the body size compared to the previous candles.

When to Use the Advance Block

The Advance Block pattern is useful for:

• Reversal Signals: When it appears at the top of an uptrend, it may indicate a potential bearish reversal.
• Confirmation: Look for confirmation from subsequent bearish candles to validate the pattern.

Formula Example

To identify the Advance Block:

1. Identify the Candles:
   • First Candle: The body should be long and bullish.
     • Condition: Open < Close with a long body.
   • Second Candle: The body should be smaller than the first but still bullish, with a higher open and close.
     • Condition: Open (2nd) > Close (1st) and Close (2nd) > Close (1st) with a smaller body compared to the first candle.
   • Third Candle: The body should be the smallest of the three, still bullish, and higher than the second candle’s open and close.
     • Condition: Open (3rd) > Close (2nd) and Close (3rd) > Close (2nd) with an even smaller body compared to the second candle.

For instance:

• First Candle: Open Price = 100, Close Price = 110
• Second Candle: Open Price = 110, Close Price = 115
• Third Candle: Open Price = 115, Close Price = 117

Parameters

The parameters for identifying the Advance Block pattern include:

• Data: Defines the type of data to use for the pattern.

  • Value: ohlc
  • Description: The pattern uses Open, High, Low, and Close prices.

• Previous N Candles: Number of preceding candles to check.

  • Default Value: 1
  • Min Value: 1
  • Max Value: 300
  • Description: Checks for the Advance Block pattern in the last N candles.

Conclusion

The Advance Block candlestick pattern helps traders recognize potential bearish reversals at the end of an uptrend. It is essential to use this pattern in conjunction with other technical indicators to confirm the potential shift in market sentiment.