Supply and demand trading course
Supply and demand types
The Drop-Base-Rally pattern
Supply and demand
The Drop-Base-Rally
pattern
LESSON 9 MODULE 3
Supply and demand zones form and come in
different shapes, this is the reason why you
have to know the different types of supply and
demand to be able to identify them easily.
In general, there are two types of supply and
demand, the first type is Valley and Peaks and
the second one is the continuation pattern.
Valley and Peaks are composed of these
formations:
1-Drop-Base-Rally or Drop-Rally? Look at the
example below :
This is an example of a Valley, the Drop-base-
rally means a move down followed by a pause
and then a move up.
The drop is a small move that indicates a week
momentum, and the base is where the market
consolidates to accumulate enough quantities
and then go up. When the market returns to
the base, which is considered to be a demand
zone, there is a high probability that the market
will go up again.
Now let’s look at a real chart example to learn
more about this pattern:
As you can see in the chart above, the market
made a short retracement (Drop) before going
strongly up, creating a Drop-Base-Rally
pattern which is a high probability Demand
zone.
In the same chart there is another Drop-Base-
Rally pattern that I didn’t mention because it is
a weak pattern, I picked up only the most
powerful one. So, don’t get confused because
the purpose of this part is to help you identify
this pattern when you open your chart. It
doesn’t matter if it is a high probability pattern
or not, because in the next parts I will show
you in detail how to differentiate between
powerful zones and weak zones that you
should ignore. See another Example :
This is another example of a Drop-Base-Rally
pattern, the psychology behind this pattern is
that banks took the profit of the previous move,
and the market moved down forming a
retracement or a drop. Banks make another
strong move up because of a news release, an
economic data or just because they think this
is a good price to buy from.
Don’t bother yourself with fundamentals trying
to understand the reason behind this move, all
what you should focus on is the pattern.
Because when you identify the pattern, you
know exactly that there is a bank that bought
from this zone. And all you have to do is to
wait for the market to retrace and test this
zone,then you take a buy order as well to
make money with banks and financial
institutions. Look at another example below:
This is another example of the Drop-Base-
Rally Demand zone pattern, in this illustration
prices drop and then form a base while in
consolidation and then make a significant up
move. The base forms our main interest, when
price returns to this base, we may expect
some buying reaction.
As you can see when the market dropped
back down to the base which is considered as
a demand zone, prices moved up again
because there are still significant unfilled
orders in this zone. Look at another example
below :
The EUR CHF H1 above shows a clear Drop-
Base-Rally demand pattern, this pattern
happens frequently in all financial markets,
and all time frames, because when financial
institutions buy in the market they leave this
pattern as a footprint. If you can identify it, you
will be able to predict where banks are going
to buy again.
Look at this chart again, as you can see, the
market drops, and then form a base, and then
make a strong move up. Sometimes, you will
not find lot of candles that form the base. One
candle is quite enough to form the base. And
this candle can be used as a basing candle to
draw the zone, we will talk about how to draw
the zone in next lessons.
Now look at what happened when the market
returned to test the demand zone, as you can
see prices were rejected forming a nice Doji
candlestick pattern. And this rejection indicates
that there are significant unfilled orders in the
[Link] as a supply and demand trader, you
can use this candlestick pattern as an entry
signal to buy the market. We will learn about
entry and exit tactics in the next lessons. Take
a look at another example below :
This is another example of the Drop-Base-
Rally demand zone. As you can see the base
is formed only by one candle. When the
market returned to test the demand zone, we
got a nice inside bar pattern as a signal to
enter the market. But as I always say, don’t
think of how to enter the market or how to
know if it is really a bank order or not, this is
not important for the moment, because I will
explain to you how to enter the market and
how to make sure this is a bank order. Now ,I
want you please to focus on the Drop-Base-
Rally pattern. Open your charts and try to look
for these patterns in the market. You should
master them, otherwise you will have a difficult
time trying to understand the whole strategy.
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