Rally Base Drop Strategy: A powerful Supply Zone
Are you looking for a Rally Base Drop Strategy? Then this article is for you. Rally Base Drop Supply Zone is a very powerful reversal formation, generally found at market turning points.
Supply and Demand Trading Strategy is a Price Action Strategy that relies on identifying High Probability Institutional Footprints on any price chart. Unlike conventional Price Action Strategy which relies on a huge list of Price Patterns, this Strategy focuses only on 4 High Probability Price Patterns and Rally Base Drop is one of them.
ASLO Read: Price action patterns
What is a Supply Zone?
A Supply Zone is an area of Imbalance in the market, where it is likely to have the highest selling interest or potential. This can also be referred to as an area of Distribution. When you detect a Supply Zone, you have an opportunity to plan your trade accordingly by short selling. It is important to note that the Supply Zone does not necessarily guarantee a successful short trade, as the market can always move in the opposite direction. However, it is a high probability area to plan a Short Tarde.
Understanding the dynamics of the Supply Zone can help improve trading outcomes, as it indicates the area where it is likely to find maximum institutional unfilled Sell Orders. It is also a useful tool for traders to identify price points that could potentially provide liquidity when entering or exiting a position.
A Rally Base Drop pattern is a type of Supply Zone. Let’s see with the Help of an example.
What is Rally Base Drop Strategy?
A Rally Base Drop is a Price pattern that indicates the formation of a Supply Zone.
Explaining further, a Rally Base Drop is a Price pattern that occurs when prices have been rising, peaking and then sharply dropping. This indicates that the sellers are now more aggressive and have overwhelmed the buyers to form a Supply Zone.
By short-selling when price retraces to the Supply Zone, traders can capitalize on the downward market momentum and take advantage of the probable decrease in price. This Supply and Demand trading strategy can be used for both short-term and long-term trading.
How to interpret Rally Base Drop Strategy?
A Rally Base Drop has 3 parts a Bullish Leg-in Candle, a Basing Structure, and an Explosive Bearish Leg-out candle. Price Action to the right of the base candles is an Explosive drop, which indicates aggressive Institutional Selling.
How to Identify a Rally Base Drop Pattern?
Start with the Current Price on the Chart and go from Right to left
Look up and left until you find a substantial Drop in the Price
Identify whether the formation is an RBD
Mark the Zone
When marking the Zone, we need to watch for freshness and the Leg out candle should be strong.
Psychology of the Rally Base Drop Strategy
We all know that Demand and Supply Zones are created by Big Institutions and Banks. These patterns are usually called Institutional footprints, Institutions may not have been able to offload their desired amount of stock when the price of a stock or Instrument went down quickly. This implies that, when prices retrace back to the area, there is a strong likelihood that there will be a large number of pending sell orders.
We as the retail trader can participate in this bearish trend when the price of the stock comes back to the Supply Zone.
How to Trade the Rally Base Drop Pattern?
This pattern is generally found at the end of the uptrend. Hence, it is also called a reversal formation. We know how to identify a Rally base drop strategy, but how do we trade them?
Simple, when the price retraces back to the RBD Supply Zone, we can initiate a short trade by placing a sell order and participating along with the Institutions.
Let’s see with the Help of an example
How to trade Rally Base Drop in Forex Markets
This Pattern can be applied in forex markets also, let us see with an example
If you look at the above trade on EUR/JPY daily charts, price retraced back to the Supply zone, gave us more than 3:1 reward to risk ratio. Price again retraced back to the Rally Base Drop supply zone and had a sharp fall. Our Supply and Demand Zone Indicator plotted this Zone in real time.
How to trade Rally Base Drop in Cryptocurrencies
This Pattern can be applied in Crypto markets also, Let’s see an example
The below is a chart of BITCOIN, prices
Our Supply and Demand zone Indicator plotted this zone on BITCOIN /USD Daily Time frame, we got a short selling opportunity when prices retraced back to the zone, achieved a good reward to risk ratio.
How to trade Rally Base Drop in Derivatives
This Pattern can be applied to Derivatives also, Let’s see an example
LIC housing finance (Futures contract) trade on Daily Time Frame, price retraced back to the Rally base drop zone, and tested this zone again and gave us a good reward-to-risk ratio.
How to trade Rally Base Drop Pattern in Crude Oil
This Pattern can be applied to Crude oil also, Let’s see an example
If you look at the Image above, Crude OIL 240 min time frame developed a Rally base drop zone on 240-time frame, prices retraced to the zone for a short sell.
How to trade Gaps with Rally Base Drop Strategy
Gap trading is a great strategy and will amplify your trading. Sharp rises and falls of a stock price without much trading activity between the market’s close and opening can be called gaps. Gaps demonstrate an imbalance between buyers and sellers. Gap formations can be attributed to multiple fundamental and technical factors.
Let’s see how to trade Gaps with Rally Base Drop Pattern Example
In the below Example, Price gapped up into the Rally base Drop Zone and Prices reacted with a sharp fall from there. If we can identify Supply Zones and Demand Zone, we can be Profitable using gaps strategy.
In the above chart of Infosys Daily Chart, our Supply and Demand Zone Indicator plotted this Rally Base Drop Zone, Prices gapped up into the zone from where price reacted to the zone and had a sharp fall. One can learn these strategies from our Core Strategy Supply and Demand trading Course.
Automated Supply and Demand Zone Indicator
Trading can be made simple with Tools and Indicators. When we trade in the real markets, we often get overwhelmed and confused about patterns and formations. This can be eliminated with the help of an Automated Supply and Demand Zone Indicator developed by MAK Trading School.
The Indicator is easy to use, all you need is a TradingView Account to see charts and patterns. Just apply the indicator on the charts and get real-time Zone formations on your TradingView platform. Also, Telegram Alerts on your Mobile. The Indicator is Applicable in all Markets and Time Frames.
How to use this Supply and Demand Zone Indicator
Video link
To know more about the features of the Indicator, please click on the Video below
Conclusion
All in all, the Rally Base Drop strategy is one of the most powerful price action trading strategies a trader can use. It is a high-probability reversal trend trading strategy that traders can utilize to maximize their profits and minimize their losses.
This strategy can be used in any market, whether it is stocks, commodities, or Forex. With its simple rules and powerful results, the Rally Base Drop is a reliable trading strategy that can be used to increase a trader’s chances of success.
MAK Trading School has been training and teaching this Strategy for the past many years and trained more than 5000 + Students. Learn price action trading and techniques with our CORE STRATEGY course.
Join the Trading Mantra Workshop, get an edge over other strategies and learn this simple strategy applicable over any market and any market conditions.
FAQ’s
Ans. A Rally Base Drop pattern is generally found at the end of the trend, they are also called as reversal patterns and can be found at the end
of the trend.
1 Comment.
I thoroughly enjoyed reading your insightful blog post. Your perspectives and ideas were incredibly helpful.