Detecting Rally-Base-Drop Supply and Drop-Base-Rally Demand Zones

Summary

The document explains an indicator for marking supply and demand areas formed by a directional move, a pause, and a move in the opposite direction. Two consecutive bullish candles define a rally and two bearish candles define a drop; periods matching neither condition are treated as a base. The pattern order distinguishes a rally-base-drop supply zone from its inverse, drop-base-rally demand zone.

The indicator marks the base price range with colored rectangles and extends a line from a related pivot until price breaks that level. Its single sensitivity setting controls the number of bars used in pivot detection; a larger value is described as filtering for more significant moves. The text suggests using zones as potential reaction or structure levels, with higher chart timeframes favored. It supplies implementation logic but no tests or evidence that zones predict reversals, and it gives no entry, exit, or risk rules. Zone behavior may vary across instruments and timeframes.

Key ideas

• A rally-base-drop sequence is used to identify a possible supply zone.
• The inverse drop-base-rally sequence is used to identify a possible demand zone.
• The indicator highlights the base range and tracks a pivot level until price breaks it.
• Increasing the pivot lookback setting reduces sensitivity to smaller moves.
• The document offers no performance evidence or complete trading and risk rules.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.