A rally base rally is a trend continuation pattern in supply and demand trading in which a big bullish candlestick is followed by a base candlestick, which is again followed by a big bullish candlestick. It is denoted by the term RBR.
This price pattern shows that the trend will continue in a bullish direction, but we cannot just open buy trades upon the formation of this pattern. So in this article, I will explain in complete detail from A to Z about trading the rally base rally supply and demand pattern.
Make sure to read the full article in complete detail without skipping any step.
Origin of the rally base rally in trading
Before going directly to the RBR pattern trading strategy, let me explain the origin of this pattern to you.
In the market, there are two types of price waves: an impulsive wave and a retracement wave.
In real-life trading, a phenomenon happens where the demand for a particular asset increases, making a bullish wave on the candlestick chart. It means after more buying potential, a balance between both buyers and sellers comes to the market, shaping a ranging market structure on the candlestick chart. After this ranging market structure, the buying power of the market increases again, which appears on the candlestick chart in the form of a break of range and a number of bullish candlesticks. You can also see this phenomenon in the image below.
So according to supply and demand technical rules, when such a pattern forms, then it’s a direct indication of a bullish trend continuation.
Like other chart patterns such as head and shoulders or harmonic patterns, a rally base rally is also a supply and demand pattern. So when the RBR pattern forms, then the price will mostly move in a bullish direction.
Also check the wave analysis of this RBR chart pattern in the image below. Whenever you see such a price pattern, then it means the price will continue the previous bullish trend.
How to identify the rally base rally on a candlestick chart?
In the previous portion, you learned the origin of the rally base rally. Now I will explain how to find the rally base rally on a candlestick chart.
On the price waves, we can predict the rally base rally pattern, but it’s very hard to use it for trading purposes because in real-life trading, it will be much more difficult to find a high-probability RBR pattern. So let me explain how we can identify the same wave pattern easily on a candlestick chart.
- Big Bullish Candlestick: If we go to a higher timeframe, then we will see a big body bullish candlestick. For example, if we are looking at a bullish impulsive wave on the 5-min timeframe and we switch to a daily or 4H timeframe, then we will see a big body bullish candlestick. So just remember that a big body bullish candlestick means a bullish impulsive wave.
- Base Candlestick: A base candlestick is the one which has a very small body and large wicks on both the upper and lower sides.
So a rally base rally will be a combination of two big green candlesticks and a base candlestick. The base candlestick is sandwiched between two big bullish candlesticks.
RBR Formula = Bullish candlestick + Base Candlestick + Bullish candlestick
You can also analyze the image below for a better understanding of this pattern.
Also remember that the high and low of base region acts as the zone. we will use these highs and lows to draw the rally base rally demand zone on the price chart.
How price reacts to the RBR pattern?
After the formation of the rally base rally pattern, we as retail traders come to know that now the bullish trend will continue and the price will move higher. But we cannot just open buy trades here blindly. We first have to learn how the price reacts to this pattern before continuing the trend.
According to supply and demand concepts, the base region always contains pending orders of market makers. So once a rally base rally pattern completes, then the price retraces towards the base region; then, after filling the pending orders from the base region, the market continues the previous trend.
This is the most important concept, and you will have to check multiple RBR patterns and check how the price reacts before continuing the previous trend.
Sometimes, you will not see any retest of the base candlestick or price retracement on higher timeframes; then you will have to switch to a lower timeframe, and then you will see a price retest.
How to trade the rally base rally pattern?
As for trading, we cannot just open or close the trade with a stop loss, but we have to figure out the risk management plan too. Because if our risk management plan is not getting fulfilled with a strategy, then we should skip that strategy. Because in the long term, we will face losses if we are not following a risk management plan.
So to get a high risk-reward trade, we will always wait for the price to retrace to the base region to keep the stop loss level a bit tight and a high take profit level.
Now let me explain the RBR trading strategy.
- First, highlight the RBR pattern and then add a horizontal line on the high and low of the base candlestick. This region will act as a base region, and it contains a number of pending orders of institutional traders. Once the price retraces to this region, then pending buy orders will get filled, and a new bullish trend will form.
- Next, open a buy limit order at the high of the base region and wait for the price to retrace to this zone.
- Once the buy trade gets filled, then add a stop loss level below the base region. Remember to place the stop loss a few pips below to protect the trade from false breaks.
- For the take profit level, we will use other chart patterns or break of structure or other such methods so we can get as much profit as possible.
Because when we get 1:10, 1:20 risk-reward trades, then a few wins will keep the account in the green.
When to close or delete the unfilled order?
In RBR trading, we cannot keep holding a pending order until it gets filled. Because institutions are obviously not keeping pending trades forever. As time passes, the market makers will lose interest in that level.
So if an RBR pattern forms and we add a pending buy limit order at the base region and it does not get filled, then we will delete it.
So after how much time will we have to delete the unfilled order?
Just look at the price swings. If the market fills the order instantly after pattern formation, then it’s perfect. But if not, then wait for a complete price swing or a price wave. If the market turns around to the zone after a complete wave, then it’s also okay to keep holding the order. But if the market makes one swing or wave and again does not get filled, then delete that pending order and wait for another opportunity in the market.
How to find a high probability RBR pattern?
After being able to identify the rally base rally patterns correctly, the next goal is to filter out bad patterns from good ones. So we only trade the best RBR patterns to get a high winning ratio.
So to get the best RBR patterns, we will have to add a confluence of any other chart pattern or tool or indicator. I have picked a few important confluences which you should also use to get high probability RBR patterns.
- Fibonacci tool: One of the best tools to get high probability RBR patterns is the Fibonacci. We will just use the Fibonacci golden zone here at 50 to 61.8% only. So we will trade those RBR patterns which form within the golden zone region. Also remember that the base region should be within the zone; the other big candlestick can also be out of the zone.
- Key level: If the RBR pattern also forms on a major key resistance or key support level, then it will also be considered a high probability RBR pattern.
- Moving average: If the RBR pattern forms on the band of a bullish EMA (20,50), then it should also be considered a strong RBR pattern.
I have mentioned three confluences; however, you can also add other confluences.
Risk management plan
To trade with the RBR pattern, you must have a risk-reward ratio of 1:2. However, I will recommend you to hold the profitable trade as much as you can. Because winning is in holding the trade longer. I know it requires much patience and practice.
The recommended risk-reward ratio that you should expect from a trade is 1:10, so if you even lose the next 9 trades, then still you will be 1% in profit.
Also remember to risk only 1% per trade if your account size is small. However, if you have a big trading account, then you should risk 0.5 or 0.1% per trade.
The bottom line
In real trading, we will not have to trade each RBR pattern. We will have to trade only high probability ones to get a high winning ratio.
If you are confused by a certain pattern, then just skip it and wait for the formation of another pattern.
Also make a mindset that you will also get many losing trades, but in the end, your account will be green because one big win will cover the losses of small losing ones.
I hope you will surely like this explanation of the rally base rally supply and demand trading concept.