The Advance Block Candlestick Pattern – Backtest and Analysis
For a long, candlestick patterns have guided the decisions of traders. They still do so today. One of them is the Advance Block candlestick pattern. Today, we’ll discuss how to spot and trade the Advance Block on the charts.
Advance Block Definition and Meaning
The Advance Block pattern is a bearish reversal candlestick pattern that is made up of three bullish candlesticks. Most times, this pattern appears at the end of a bullish trend.
Theoretically, only a bearish reversal should follow this pattern. But of course, no pattern is correct all the time. So there are times when this pattern merely acts like a trend continuation pattern. Regardless, this rare pattern, when it does appear, makes up the backbone of many traders’ trading strategies, so it is still worth looking at.
Advance Block graphical presentation
To better understand what the pattern looks like let’s show you a graphical presentation of Advance Block.
The pattern can look like this:
If we zoom out such a pattern can take a form like this:
Advance Block candlestick pattern backtest
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The Benefits of Using the Advance Block Candlestick Pattern in Your Trading Strategy
One key benefit of the Advance Block Candlestick Pattern is that it can provide early warning signs of potential trend changes. By recognizing the pattern and its characteristics, you can get a head start on identifying potential market reversals and making trades accordingly. This can help you stay ahead of the market and potentially capitalize on early moves.
Another benefit of the Advance Block Candlestick Pattern is that it can help you confirm the significance of other technical indicators and signals. For example, if you are using a trend-following indicator, such as the Moving Average, to identify potential trend changes, the Advance Block Candlestick Pattern can be used to confirm the validity of the signal. This can help you make more confident and informed trading decisions.
In addition, the Advance Block Candlestick Pattern can be used in a variety of market conditions and time frames. Whether you are trading stocks, forex, or other financial instruments, the Advance Block Candlestick Pattern can be a valuable tool to add to your trading arsenal. And because the pattern can be identified on different time frames, from short-term charts to long-term charts, it can be useful for traders with different time horizons and trading styles.
How to Identify the Advance Block Candlestick Pattern
You identify the Advance Block candlestick pattern if you spot where a bullish candlestick opens below the close of a previous strong bullish candlestick.
The third candlestick also needs to open below the closing price of the second candlestick. But that’s not all. The third candlestick must have a short body and a long shadow, still in the direction of the prevailing uptrend.
You must remember that:
- All three candlesticks must be bullish.
- The second and third candlesticks must open below the closing price of the previous candles.
- Expect the last two candlesticks to have increasingly longer shadows.
If these stars align, you have the Advance Block candlestick pattern. Almost nothing happens for no reason. Everything we see is a product of cause-effect pairs, and this candlestick pattern is not excused. So, what causes the Advance Block candlestick pattern to act the way it does? Let’s look at the psychology behind the pattern:
The Psychology Behind The Advance Block Candlestick Pattern
The psychology behind the advance block candlestick pattern goes like this:
The Advance Block candlestick pattern starts with a strong bullish or bearish candlestick, depending on where the candlestick appears. Ideally, a new candlestick should start right where the previous one ended. But this is the first “ideal rule” that this candlestick pattern violates.
The second candlestick in the pattern starts below the closing of the first bullish candle. This may suggest that the bullish momentum is running out. Most bullish traders of this pattern see this as a bad signal because it is the first sign of weakness. But nothing has been determined yet. The pattern is incomplete without the last candlestick.
If the third candlestick opens below the second candlestick, even slightly, we have the next bad signal.
Technically, the bulls won the battle since the third candlestick is still bullish. The war, though, is lost because an Advance Block candlestick pattern that appears on bullish candlesticks is a reversal pattern.
And that is the psychology behind the Advance Block candlestick pattern. It’s a story of how the bulls lose their momentum until they give in to the bears.
The Role of Volume and Trading Volume in the Advance Block Candlestick Pattern
The role of volume and trading volumes does not play a significant role in the advance block candlestick pattern. However, volume and trading volume might provide valuable information about the strength of the pattern and this can improve your strike rate significantly. But you need to backtest first.
First, it’s important to understand what volume and trading volume are in the context of financial markets. Volume refers to the total number of shares or contracts traded within a given period of time, such as a day or a week. Trading volume, on the other hand, refers to the number of shares or contracts traded in a specific security or market.
A large volume of trading activity can indicate a high level of interest in a particular security or market, which can signal a potential change in market trends. On the other hand, low volume may indicate a lack of interest or momentum in the market, which could signal that the Advance Block Candlestick Pattern is not as significant.
To use volume and trading volume effectively when identifying the Advance Block Candlestick Pattern, you can compare the volume of the pattern with the overall volume and trading volume in the market.
For example, if the Advance Block Candlestick Pattern appears on a stock with relatively high volume and trading volume compared to the rest of the market, this could be a sign of a potential trend change. However, if the pattern appears on a stock with low volume and trading volume, it may not be as significant.
All the information we have on this pattern is useless if you don’t know how to use it to improve your trading:
How To Trade The Advance Block Candlestick Pattern
Here’s how to trade the Advance Block candlestick pattern:
Step 1
Wait for the candlestick pattern to form completely. Don’t forget that the pattern is not complete until the closing of the third candlestick.
Step 2
After the formation of the candlestick pattern, there are two ways to go from here.
The first and the most obvious thing to do is to create a sell order at the closing of the third candlestick. We call this approach the aggressive approach. The conservative approach would then be waiting for one more candlestick for confirmation.
As you would expect, the conservative approach is safer because it prevents you from taking unnecessary risks. The confirmation candlestick in the conservative approach allows you to see if a reversal is more likely to come after the pattern.
For instance, if a strong bearish candlestick is the confirmation, this is good news. But if another bullish candlestick is the confirmation, this may be bad news for Advance Block reversal traders.
However, waiting for another confirmation candlestick after the formation has its own risk of making you miss out on some pips. For instance, if the confirmation is a strong bearish candle, you can only get in after that candle. You would have missed some pips on that it. This is why some traders prefer the aggressive approach, where they place their sell orders immediately after the formation of the third Advance Block candlestick.
Step 3
The first thing to consider when placing your stop loss order is the size of the pattern. If the advance block pattern is large, you should place your stop loss order just above the high of the third candle in the pattern. This will give you enough room to avoid being stopped out prematurely if the uptrend continues, but will still provide some protection against a sudden reversal.
If you used other confluences such as Support and resistance zones, fibonacci retracement tools or Moving Averages, you might consider placing your stop loss above the candlestick that significantly interacted with those tools.
Step 4
When it comes to setting your ‘take profit’ points, you can target the low of the first candlestick that formed the pattern. This is a conservative approach and it is only encouraged if the risk-reward ratio is greater than two.
Trading this candlestick pattern is even more encouraged because it can help determine more suitable profit targets without leaving much money on the table. For instance, if you entered the trade on a Resistance zone, you can set your target profit at the next support zone.
There’s even one more smart way to know when to exit the market with your profit is you are a walking encyclopedia of candlestick patterns; simply exit when you see a bullish candlestick pattern already forming.
Is the Advance Block Pattern The Same as the Three White Soldiers Pattern?
The advance block pattern is not the same as the three white soldiers pattern, although both patterns share three bullish candlesticks.
The first major difference is that the bullish candlesticks of the three white soldiers are healthy-looking. They are all strong bullish candlesticks. On the other hand, the candlesticks of the Advance Block pattern get weaker as the pattern emerges, with the third candlestick having the longest shadow.
Another difference is that the second and third candlesticks of the Advance Block pattern start within the body of the previous candlestick. In simple English, the bulls can’t even prevent the price from dropping before the opening of the second and third candlesticks.
And finally, the Advance Block is a reversal pattern, while the Three White Soldiers is a bullish trend continuation pattern.
Before You Go!
No candlestick pattern is powerful enough when you use it in isolation. We recommend combining the Advance Block candlestick pattern with other trading confluences for the best results.
Confluences give context to patterns. They often indicate momentum or volatility in the market and help you contextualize the pattern if it’s likely to hold or not. The major reason we use confluences is that they help filter out bad trades.
We can use an array of tools as confluences. We can use other technical tools such as support and resistance, trendlines, Fibonacci tools, or triangles. Alternatively, we can use trading indicators such as Bollinger bands, RSI, or moving averages.
For instance, if a bullish Advance Block pattern coincides with the RSI indicator being in the overbought level, this is a confirmation of the potential reversal. This type of setup is more likely to hold than the pattern just anywhere on our price chart.
Also, it isn’t yet an Advance Block pattern until the third candlestick forms completely. Don’t make any trade based on this pattern until you have the confirmation of the third candlestick.
FAQs Advance Block candlestick pattern
There may be some questions on your mind about the Advance Block candlestick trading strategy. That’s why this section is dedicated to answering the frequently asked questions (FAQ) about the trading pattern.
What is an Advance Block?
An Advance Block is a bearish candlestick pattern that consists of three consecutive long-bodied candlesticks. It is typically seen as a bearish reversal pattern, signaling that the current uptrend may end.
How does the Advance candlestick pattern look?
The Advance Block pattern consists of three long-bodied candlesticks that are all moving in the same direction (up or down). The first candlestick is the longest, followed by the second candlestick, which is shorter. The third and final candlestick is the shortest of the three.
What does the advance block candlestick pattern tell traders?
The Advance Block candlestick pattern typically tell traders it’s a bearish reversal pattern, signaling that the current uptrend may end. It is a sign that the bulls are losing control and the bears are gaining momentum.
Is the Advance Block a bullish or bearish candlestick pattern?
The Advance Block is a bearish candlestick pattern. It is typically seen as a bearish reversal pattern, signaling that the current uptrend may end. However, our data-driven analysis, when we backtested it on the S&P 500, indicated it’s more bullish than bearish.
What is the success rate for the advance block candlestick pattern?
The success rate for the advance block candlestick pattern is 65%, according to our candlestick study. Thus, this is reasonably reliable pattern.
How often does the advance block candlestick pattern happen?
The advance block candlestick pattern does not happen often. Since 1993 until today, it has only been 59 advance block patterns kicker in the S&P 500 stock index.
How reliable is the advance block candlestick pattern?
The advance block candlestick pattern is a pretty reliable candlestick pattern with a 65% success rate.
How accurate is the advance block candlestick pattern?
The advance block candlestick pattern is pretty accurate with a 65% accuracy.
Is the advance block candlestick pattern profitable?
The advance block is a profitable candlestick pattern. Since 1993, it has returned a 0.23% per trade of 0.47% for S&P 500.
What is the win rate for the advance block candlestick pattern?
The win rate for the advance block candlestick pattern is 65% based on our numbers and statistics for S&P 500. For example, the numbers might be different if you trade other markets, like gold or bonds.
What is the failure rate for the advance block candlestick pattern?
The failure rate for the advance block candlestick pattern is around 35% based on our studies and data-driven analysis. However, it’s in candlestick books regarded as a bearish pattern, and this seems like an incorrect observation for backtests done on the S&P 500. That said, the results might be different for other markets.
How can I identify the Advance Block Candlestick Pattern?
You identify the advance block pattern when you find or see three bullish candlesticks where the second and third open below the closing price of the previous candles. The third candlestick should have a short body and a long shadow in the direction of the prevailing uptrend.
How can I trade the Advance Block Candlestick Pattern?
You trade the advance block candlestick pattern when the pattern has formed completely, then consider a sell order at the closing of the third candlestick. The conservative approach involves waiting for an additional candlestick for confirmation.
How rare is the Advance Block Pattern, and why is backtesting important?
The Advance Block Pattern is considered rare; only 59 observations in the S&P 500 since 1993 until today. Backtesting is crucial before trading any candlestick pattern to validate its effectiveness and performance.
Advance Block candlestick pattern video
Advance Block candlestick pattern – conclusion
The Advance Block pattern is an incredibly rare trading pattern. But when it appears, it’s often a graphical representation of a weakening bullish trend. And that is why reversal traders like seeing the pattern emerge. However, we are strong believers in backtesting all your trading ideas and would not trade any candlestick pattern without a proper backtest.