Advance Block Candlestick Pattern

The advance block bearish reversal Japanese candlestick pattern loses $34.80, $2.50, and $21.50  in the crypto, forex, and stock markets, respectively, on average per $100 risked.

In other words, the data shows us that most traders will likely lose money in every market when trading this pattern. 

But what if I told you that you could trounce traditional traders’ performance using a data-driven approach?

Would you be interested?

Keep reading to learn how to trade the advance block optimally.

What Is an Advance Block Candlestick Pattern?

An advance block is a three-bar bearish reversal pattern. It’s supposed to show the strength of the bulls is waning, and while it does to some extent, this pattern overwhelmingly tells us that volatility is incoming. 

Let’s determine how to identify this pattern.

How to Identify the Advance Block Candlestick Pattern

Advance Block Candlestick Pattern Identification TSLA

The following are the requirements for a valid advanced block pattern: 

  • Three consecutive bullish candlesticks consecutively closing higher.
  • Each opens within or near the real body of the previous candle.
  • The first candlestick of the pattern should have a long body with no or a small upper wick.
  • The second and third candlestick of the patterns have progressively smaller real white bodies potentially accompanied by longer upper shadows.
  • The pattern must occur during an uptrend.

The Tesla (TSLA) daily chart on February 26th, 2018, shows an advance block chart pattern. 

This reversal pattern’s first long bullish candlestick continues in the direction of the existing uptrend.

The bullish momentum reduces in the second candle and is visible by the candle’s smaller size. We can also see that the sellers pushed buyers back on day two with the longer upper wick. 

The third green candle is smaller than the second showing further bullish momentum loss.

Now that we can spot the advance block in our candlestick charts let’s learn how to trade it optimally.

How to Trade the Advance Block Candlestick Pattern

Traders can trade the advanced block as a bearish reversal entering on a break of the third bar’s close in the stock and forex markets or as a mean reversion play in all markets.

Let’s look at how this pattern is traditionally traded and then cover how actually to trade it.

Advance Block Bearish Reversal Trade Setup

Advanced Block Bearish Reversal Trade Setup AAPL

Apple’s (AAPL) daily chart shows the advance block pattern on November 20th, 2015. We see that price is in a bullish trend, as identified by the fifty-day moving average. The first candle is a relatively longer green bullish candle with no upper shadow. The second candle opens near the first candle’s body with an upper shadow. And the third candle opens near the real body of the second with a progressively smaller real body.

Traders traditionally trade this pattern by entering in at a break of the low of the third candle with a stop-loss set above the high of the same candle. With this bearish reversal signal, timing is everything. 

By entering in at the break of the third bar’s close instead of the low, you can turn this pattern from a loser to a winner – but with this being said, it’s still optimal to trade this pattern using a mean reversion strategy.

Advance Block Bullish Mean Reversion Trade Setup

The above daily price chart of Tesla (TSLA) on February 26th, 2018, beautifully shows the advanced block pattern. We see that price is above the fifty-day moving average, constituting an uptrend. The first green bar is long with a tiny upper wick, with the second and third candles opening near each other’s real bodies getting consecutively smaller.

The bullish mean reversion setup waits for the price to break and reclaim the pattern low to go long with a stop loss of one ATR. 

In our Tesla (TSLA) example, we see the price goes below the pattern low on March 1st, 2018, and crosses the low bullish on March 2nd, 2018 taking a profit on March 12th, 2018.

Does the Advance Block Candlestick Pattern Work? (Backtest Results)

Using the following rules, I backtested the advance block candlestick pattern on the daily timeframe in the crypto, forex, and stock markets.

  • A close above the 50-day SMA constitutes an uptrend.
  • I tested risk-reward ranges from 1 to 5. 
  • The optimal risk-reward ratio is selected using profit per bar.
  • Entry and exits as discussed in the trading section above.
  • Confirmation must occur within three days of the pattern signal.

Advance Block Bearish Reversal Backtest Results

cryptoforexstock
pattern_nameadvance blockadvance blockadvance block
pattern_categorybearish reversalbearish reversalbearish reversal
pattern_bars333
required_trenduptrenduptrenduptrend
traded_asbearish reversalbearish reversalbearish reversal
stop_bar_typehighhighhigh
entry_bar_typelowlowlow
risk_reward255
timeframe2015-20212010-20212000-2021
bar_perioddailydailydaily
total_tickers39513516951
pattern_tickers17810724086
patterns11272038262007
trades6661032937069
confirm_perc0.590.510.6
wins14416874859
losses522864232210
win_perc0.2160.1630.131
avg_win_bars16.8822.3222.29
avg_loss_bars5.858.916.75
cons_wins4188
cons_losses114827
edge-0.348-0.025-0.215
cryptoforexstock
pattern_nameadvance blockadvance blockadvance block
pattern_categorybearish reversalbearish reversalbearish reversal
pattern_bars333
required_trenduptrenduptrenduptrend
traded_asbearish reversalbearish reversalbearish reversal
stop_bar_typehighhighhigh
entry_bar_typeclosecloseclose
risk_reward555
timeframe2015-20212010-20212000-2021
bar_perioddailydailydaily
total_tickers39513516951
pattern_tickers17810724086
patterns11172051262045
trades10691900157459
confirm_perc0.960.930.93
wins188517012416
losses8811383145043
win_perc0.1760.2720.216
avg_win_bars6.233.513.56
avg_loss_bars4.962.281.57
cons_wins52415
cons_losses243526
edge0.060.630.3

Advance Block Bullish Continuation Backtest Results

cryptoforexstock
pattern_nameadvance blockadvance blockadvance block
pattern_categorybearish reversalbearish reversalbearish reversal
pattern_bars333
required_trenduptrenduptrenduptrend
traded_asbullish continuationbullish continuationbullish continuation
stop_bar_typelowlowlow
entry_bar_typehighhighhigh
risk_reward555
timeframe2015-20212010-20212000-2021
bar_perioddailydailydaily
total_tickers39513516951
pattern_tickers17810724086
patterns10891913358713
trades7201179842987
confirm_perc0.660.620.73
wins17018877541
losses550991135446
win_perc0.2360.160.175
avg_win_bars13.9629.2718.36
avg_loss_bars6.18.225.67
cons_wins264
cons_losses83027
edge0.42-0.040.055
cryptoforexstock
pattern_nameadvance blockadvance blockadvance block
pattern_categorybearish reversalbearish reversalbearish reversal
pattern_bars333
required_trenduptrenduptrenduptrend
traded_asbullish continuationbullish continuationbullish continuation
stop_bar_typelowlowlow
entry_bar_typeclosecloseclose
risk_reward555
timeframe2015-20212010-20212000-2021
bar_perioddailydailydaily
total_tickers39513516951
pattern_tickers17810724086
patterns10981920358835
trades10391685953954
confirm_perc0.950.880.92
wins250277510580
losses7891408443374
win_perc0.2410.1650.196
avg_win_bars8.3916.429.38
avg_loss_bars3.045.353.35
cons_wins366
cons_losses124529
edge0.445-0.0150.18

Advance Block Mean Reversion Backtest Results

cryptoforexstock
pattern_nameadvance blockadvance blockadvance block
pattern_categorybearish reversalbearish reversalbearish reversal
pattern_bars333
required_trenduptrenduptrenduptrend
traded_asbearish mean reversionbearish mean reversionbearish mean reversion
stop_bar_typeatratratr
entry_bar_typepattern_highpattern_highpattern_high
risk_reward111
timeframe2015-20212010-20212000-2021
bar_perioddailydailydaily
total_tickers39513516951
pattern_tickers17810724086
patterns11642049762089
trades6201018636614
confirm_perc0.530.50.59
wins322691022123
losses298327614491
win_perc0.5190.6780.604
avg_win_bars1.613.02.06
avg_loss_bars1.714.612.79
cons_wins73626
cons_losses589
edge0.0390.3580.204
cryptoforexstock
pattern_nameadvance blockadvance blockadvance block
pattern_categorybearish reversalbearish reversalbearish reversal
pattern_bars333
required_trenduptrenduptrenduptrend
traded_asbullish mean reversionbullish mean reversionbullish mean reversion
stop_bar_typeatratratr
entry_bar_typepattern_lowpattern_lowpattern_low
risk_reward111
timeframe2015-20212010-20212000-2021
bar_perioddailydailydaily
total_tickers39513516951
pattern_tickers17810724086
patterns11782093463094
trades15716306613
confirm_perc0.130.080.1
wins10911094621
losses485211992
win_perc0.6940.680.699
avg_win_bars4.50.881.05
avg_loss_bars2.581.451.9
cons_wins498
cons_losses244
edge0.3840.360.399

The Bottom Line

While the advanced block pattern is commonly thought of as a bearish reversal, which has worked profitably if you enter in at the close of the last pattern bar,  the data tell us that it works much better as a mean reversion play.

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