Advance Block Candle Pattern (real chart examples)

Advance Block Candle Pattern (real chart examples)
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The Advance Block Candle Pattern is a candle pattern formed by three candles with consecutively higher closes and signal a potential reversal in the market. In this article we will show you how to identify them in the right market position with real chart examples.

The Advance Block Candle Pattern is a three candle pattern which signals a potential reversal in the market. Advance Block is bearish and should be identified as a signal when occurring in an up-trending market or at the top of a range.

Advance Block Candle Pattern Criteria:

  • A group of three green (bullish) candlesticks with consecutively higher closes.
  • The second and third, or just third candlestick, should show signs of weakening – the real bodies get smaller.

Additional notes:

  • This pattern can be especially significant in a mature uptrend. The progressively smaller green (bullish) real bodies or relatively long upper shadows on the latter two green candlesticks are signs of a weakening trend.
  • This signals that the rally is potentially running into trouble that long positions may need to be covered or exited.
  • This pattern is normally seen as a bearish top reversal pattern, and can precede a meaningful price decline.
  • The advance block pattern should be used to liquidate or protect longs but not to short.
  • The pattern is generally more consequential at higher price levels.

Quick Reference Guide – Candlestick Basics. If you need a reminder of what candlesticks are have a look at our free PDF – Candlesticks Explained.

The criteria and examples above are just the technical definitions of this pattern. However patterns are only useful with context and with real chart examples.

No pattern will ever exactly match the criteria and in order to be a useful signal must occur in the correct place in a trend. Let’s start by looking at the classification table for this pattern.

Advance Block Candle Pattern Classification Table

Number of Candles In Pattern 3
Type: (Reversal/Continuation) Reversal
Bullish/Bearish/Indecision Bearish
Market Conditions: Range, Down-trend, Up-trend Up-trend, Range
Position: Top, Bottom, Range Top

What Price Action Does The Advance Block Pattern Represent?

All candlestick patterns are formed by price action. But the popular ones represent price action that may have significance in signalling the direction of the market.

The Advance Block Candle Pattern is formed by three consecutive bullish candles, which could be seen as a bullish continuation signal.
The defining characteristic of the pattern however is the fact that despite the consecutive new highs, the real bodies (especially the third) become significantly smaller and the upper shadows increase in size.

When this occurs towards the highs of an extended or mature up-trend the price action that it is showing is one of slowing momentum, which is always an opportunity for a reversal.

However it is important to remember that depending on the underlying market conditions it could still be a pause rather than a reversal and as such should be used as a signal to cover longs and not to short.

As with all reversal patterns, these signals are better when seen after a sustained trend in one direction. The signal is best when formed in a trend but can also be valid when formed at the appropriate place in a ranging market.

Hint: It is always good practice to look for confirmation for any signal that you are looking to trade.

Advance Block Pattern Example With Confirmation

In this example on the UK100 market the price action had been up-trending towards a key round level resistance area.

The market then formed an Advance Block Pattern, signifying a loss of momentum. This along with the resistance level was too much for the market to break through and a reversal occurred.

Advance Block Candle Pattern With Confirmation Example
Advance Block Candle Pattern With Confirmation Example

Note: you can get a free round level indicator for MT4 from us here: Round Levels MT4 Indicator.

In What Market Conditions Does The Advance Block Pattern Become A Signal?

To recap – the Advance Block Pattern is a potential signal when occurring after a sustained and mature uptrend, especially at high levels.

It should be seen as a signal to cover longs and not as a signal to short the market.

Let’s look at some more real chart examples.

Advance Block Candle Pattern In An Up-trending Market

An up-trending market is one where the price action generally moves down over time and is characterized by higher lows and higher highs.

Up-trending Market Example
Up-trending Market Example

In this UK100 market example the market was uptrending and then an Advance Block Pattern formed. The third candle was significantly smaller and had a long relative upper shadow.

The market then paused before selling off and reversing the trend.

Advance Block Candle Pattern In An Up-trending Market Example
Advance Block Candle Pattern In An Up-trending Market Example

Advance Block Candle Pattern In A Ranging Market

A ranging market is one where the price action moves up and down between two sets of support and resistance. This is also known as a sideways, balancing or horizontal market. In essence the price action is struggling to break out of the range decisively either on the upside or downside.

Ranging Market Example
Ranging Market Example

Although not traditionally used as a signal in a ranging market, it can still be a useful tool to help define the top of a range.

This is because the price action it represents (slowing momentum) is the type of signal that is useful to indicate that the market is less likely to break out of the range to new highs.

In the UK100 market example below you can see an example where an Advance Block Pattern created the first level of resistance in a range and then a second Advance Block Pattern formed to confirm the top of the range.

Advance Block Candle Pattern In A Ranging Market Example
Advance Block Candle Pattern In A Ranging Market Example

Advance Block Candle Pattern Significance

As mentioned this pattern, though traditionally seen as a Bearish Reversal or top signal, can often look like a Bullish continuation pattern in practice.

This is because the pattern as originally described should only be identified as a signal in a mature uptrend at high levels.

The screenshots below show how often this pattern or candles very close to this pattern can form with little or no significance to the market trend, so be careful.

Advance Block Candle Pattern In An Up-Trending Market

Advance Block Candle Pattern In An Up-Trending Market Significance Example
Advance Block Candle Pattern In An Up-Trending Market Significance Example

Advance Block Candle Pattern In A Down-Trending Market

Advance Block Candle Pattern In A Down-trending Market Significance Example
Advance Block Candle Pattern In A Down-trending Market Significance Example

Advance Block Candle Pattern In A Ranging Market

Advance Block Candle Pattern In A Ranging Market Significance Example
Advance Block Candle Pattern In A Ranging Market Significance Example

Candle Pattern MT4 Indicator Downloads

If you trade using MT4 then why not try out our free MT4 indicators? Most of our indicators, including the most common candle pattern indicators are Free and available for download here: MT4 Indicator Page.

Most of our candle indicators also have an alternate version which can show the signal in a separate indicator window of the chart if that is your preference.
For advanced users you can use our Pin Bar Pattern Manager (Paid) to specify your own parameters of candles you want to identify. You can find that here.

Important Information About Candlestick Patterns

Attribution:

All of the candlestick patterns that we explain on NothardTrading.com must be attributed to Steve Nison and his books on candle charting, the most famous of which was Japanese Candlestick Charting Techniques (Amazon). You can also find out more at his website here.

Interpretation Of Candle Patterns:

It is important to note that these patterns were originally identified on the daily timeframes of index charts, which is still where they are the most useful. However, this does not mean that they cannot be used for other markets or time frames.

No signal is perfect and should never be used as such. Any patterns that you identify only signals a potential move based on the fact that history repeats itself and forms regular patterns in similar situations.

But past performance is no guarantee of future results! So always treat these patterns with care and think of these guidelines when using them.

Best practice guide for trading of candle patterns:

  • No pattern is ever perfect. Be aware that patterns will form slightly differently each time and in different markets.
  • Use them as consistently as possible. Even though you will never find patterns exactly the same, you should always implement a consistent ruleset when identifying and using patterns.
  • It is never a guarantee, only an indication.
  • Make sure you are using it in the right context. For example if it is a continuation pattern then don’t use it to trade reversals!
  • Use multiple signals (confirmations) to have more confidence in your trading.

More About Candlestick Patterns

If you are interested in reading more about candlestick patterns you can find our articles on this topic here: https://www.nothardtrading.com/category/candle-patterns/ or choose a pattern below to read more. 

Related Candle Patterns

Stalled Candle Pattern

The Advance Block Candle Pattern is very similar to the Stalled Candle Pattern. They are both Bearish Reversal patterns that signal a loss of momentum. To read more about this related pattern have a look at this article: Stalled Candle Pattern.

Justina Nothard

Justina Nothard

Hi, I’m Justina Nothard, a retail investor trading Stock Index Futures.

I understand how hard it can be for the ordinary trader to learn the basics and find useful tools and practical information.

This is why I decided to create Nothard Trading to help you take control of your trading.

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