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7Grade 7: Price Action Lab
Technical Analysis + Price Action · Supply and Demand Zones

Rally-base-drop and drop-base-rally formations

Recognize the two canonical zone formation patterns and what each tells you.

3 min read+25 XPLesson 82 of 96
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Technical Analysis + Price Action

Supply and Demand Zones

Lesson 82 of 9685%
Lesson 82 of 96Technical Analysis + Price ActionSupply and Demand Zones

Today's tiny win: make one idea click.

Recognize the two canonical zone formation patterns and what each tells you.

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Two shapes, every zone

Once you have seen rally-base-drop and drop-base-rally enough times, every supply and demand zone on the chart starts to feel like one of two repeating shapes. RBD is the supply zone pattern. Price rallies up, pauses in a tight sideways base, and then drops impulsively. The base is where sellers absorbed the buying, and that base is your supply zone. DBR is the demand zone pattern. Price drops, pauses in a tight base, then rallies impulsively. The base is where buyers absorbed the selling, and that base is your demand zone.

Wick shows two cards, RBD where rally, base, drop makes a supply zone and DBR where drop, base, rally makes a demand zone, the two shapes behind every zone.RBDRally, base,drop: makessupplyDBRDrop, base,rally: makesdemand
Wick saysRally, base, drop makes supply, and drop, base, rally makes demand.

Why does the base matter so much? Because the base is the evidence. Without the base, you are looking at a clean reversal candle with no clustered origin to anchor the zone to. With a base, you have a defined rectangle made of multiple candles that participants traded inside. That cluster is what gives the zone real edges. The longer and tighter the base, generally the cleaner the eventual zone reaction.

Quality criteria for the base. First, the base should be tight. Two to six candles is typical. If the base sprawls into twenty bars of slop, the zone boundaries blur and the resulting reaction tends to be weaker. Second, the candles inside the base should be smaller than the impulsive move on either side. A base that contains candles as big as the move is not really a base, it is more chop. Third, the move out of the base should be impulsive. Big bodies, few wicks, a single direction. That impulse is what tells you one side just won the auction inside the base.

Wick holds a clipboard checking 2 to 6 candles, smaller than the move and fast move out, with a red X on 20 bars of slop, listing what makes a base strong.Good base2 to 6 candlesSmaller than the moveFast move out20 bars of slop
Wick saysA good base is short and tight, with a fast move out of it.

There are also continuation versions of these patterns. Rally-base-rally and drop-base-drop, where price pauses inside a trend and then continues in the same direction. Continuation zones can still produce reactions on retest, but they are generally weaker than reversal zones because they represent a pause rather than a true turning point. When you are scanning a chart for the highest probability zones, prioritize the reversal patterns first.

Wick stands by a scale where reversal zones from RBD and DBR outweigh pause zones from RBR and DBD, teaching which zones to look at first.ReversalzoneRBD, DBRPausezoneRBR, DBD?
Wick saysReversal zones usually react better on retest than pause zones inside a trend.

Recap: RBD produces a supply zone at the base before a drop. DBR produces a demand zone at the base before a rally. Tight base, small base candles, impulsive exit move. Reversal zones generally outperform continuation zones on retest.

Knowledge check

Answer before moving on.

0 / 3 answered

1. What does an RBD formation produce?

2. Which of these makes a base higher quality?

3. Why do reversal zones generally outperform continuation zones on retest?

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