Bearish Advance Block Pattern

by · December 31, 2009

BEARISH ADVANCE BLOCK PATTERN (BABP)
white sticks with consecutive higher closes

Characteristics:
1. Market is on a downtrend;
2. There are white sticks with consecutive higher closes;
3. Each day opens within the previous day’s body; and
4. The size of the body decreases from Day 1 to Day 3.

Brief Explanation:
BABP is characterized by 3 long white sticks with consecutive higher closes on an uptrend. This is comparable to the Bullish Three White Soldiers Pattern. In the BABP though, each day that follows is weaker than the preceding day. This suggests that the rally is losing its strength and a reversal is possible. The longs here must consider protecting their positions. During a mature uptrend, longs need to be careful about the BABP.

Notes:
1. The BABP has the potential to precede a meaningful price decline
2. This pattern suggests to liquidate long positions (but it is early for short positions)
3. A confirmation of the reversal on Day 4 is needed to prove that the uptrend has reversed (through a black stick, a large gap down or by a lower close on the next trading day)