What is Drop Base Rally in Trading
The drop base rally pattern in technical analysis is a chart pattern that appears when the market falls, then enters a period of sideways price action, and finally, shows explosive upward movements. Market makers open buy orders from demand zones to have a long position in trading. This is some kind of study for technical analysis known as DBR.
These patterns are the basis of supply/demand logics. In the showcased example, after a steep drop, the sale finally stopped, leaving bulls the option of buying at lower prices. However, purchasing power at that point was insufficient to reverse the market. Instead, the market starts moving sideways because neither buyers nor sellers could defeat the other party. Eventually, the price action entered the demand zone that was formed and recovered back to higher prices.
📍 How to identify Drop Base Rally pattern? The drop base rally pattern contains three waves. As shown in the figure above.
🔹 Bearish wave: Drop
🔹 Sideways wave: Base.
🔹 Bullish wave (rally).
📍 Demand Zone: A demand zone is a price level where a significant amount of buying interest or demand for an asset is believed to exist. Traders use demand zones as potential areas of support where buying pressure could increase, causing the price to rebound or reverse. As shown in the example above, we entered a long trade once the price action reached that demand zone, with the entry being inside the zone and the stop loss below the zone.
