How an Advance Block Works

By observing the shapes and color and the patterns that form in the candlestick chart form, you can predict the direction of the market. The candlestick on the right of the chart is the odd one out. It updates to show the price movements during the current-incomplete period. When it is over, the candlestick freezes, and a new one is formed to its right. A green candlestick pattern indicates that the prices rose over the period, with the bottom of the body representing the opening price, while the top represents the closing price. A red candlestick indicates that the prices fell during a certain period.

The top of a candle's body shows the opening price, while the bottom indicates the closing price. In both the red and green candles, the upper wick indicates the highest price reached, with the lowest price being at the bottom of the lower wick. An invisible wick indicates that the price it represented is equal to the opening or closing price. Both the shape and position of a candlestick in a pattern say a lot about the price action.

  • A long green candlestick can indicate buying pressure, while a red candlestick indicates that the sellers are more than the buyers.
  • A candlestick with a long wick but a short body indicates considerable pressure in a specific direction but the price was pushed back before the end of the period and may suggest that a reversal is about to occur.
  • A doji, a black cross formed when the open and close prices are very close, is insignificant because it shows that neither the buyers nor the sellers dominate. However, if one occurs in the middle of a trend, it could signify a reversal.

An advance block occurs when several green candlesticks appear on the chart pattern, indicating a significant increase in the prices. You can also tell that a candlestick chart is showing n advance block by observing:

  • Three candles have shorter bodies as compared to the previous candle.
  • The first candle indicates that the price is about to rise after a significant decrease.
  • The second candle has an opening within the body of the first candle. Its closes are above the high point of the day's candlestick.
  • If the second and the third candles are close to the day's candlestick.
  • The candles' close is very far from their highs.
  • If the candles gradually increase in size.

Example of Advance Block

You can use an advance block in the ranging market. The advance block in a ranging market displays short-term upswings when the swing nears exhaustion and returns to the normal range. For a market that is trending strongly, the advance block trading pattern is likely to exhibit a brief pause or a short pullback but not a significant reversal.

History of Advance Block

This candlestick trading pattern is believed to have originated from Japan, a century before the point-and-figure charts were invented by the West. In the 1700s, Homma, who was a Japanese trader, discovered that the emotions of rice traders in the region affected the supply and demand of the commodity.

Homma tried to give a visual representation of the "emotions" using candlesticks of different colors. Today, traders rely on candlestick trading patterns like the advance block to make major trading decisions.