A rally base drop is a supply zone pattern in which a price range forms just after the bullish impulsive wave and then a bearish impulsive wave forms after breaking the range: This results in a supply zone formation. Price will return to the range to pick pending sell orders of institutions and then a big bearish trend reversal starts. It is also denoted by RBD in supply and demand trading.
We can also use the candlestick patterns to identify the RBD supply zone.
- Because a higher timeframe bullish candlestick represents a bullish impulsive wave on the lower timeframe.
- The doji candlestick shows the ranging market structure on the lower timeframe.
- A higher timeframe bearish candlestick represents a bearish impulsive wave on the lower timeframe.
For example, we can specify the daily timeframe as a higher timeframe and 15 minutes or 5 minutes as a lower timeframe. Then a bullish candlestick, base candlestick, and a bearish candlestick on a daily timeframe will represent a supply zone formation on a 15M or 5M timeframe. We can highlight the high and low of the sideways range and then trade in the bearish direction when the price returns to the range to fill the institutional pending sell orders.
So if we combine all these then a combination of candlesticks will represent a supply zone.
Bullish candlestick + Base Candlestick/candlesticks + bearish candlestick
We can also use the candlesticks and price waves to identify the supply zone.
To draw the zone, we will always use the high and low of base candlestick or the range market structure. Just draw the rectangle by using the high and low. The market mostly starts big trends from these supply and demand zones.
In trading, prices always move from one base region to another base region. That’s why we use the base region to open the sell orders in the case of the RBD supply zone.