The image illustrates the Rally-Base-Rally and Rally-Base-Drop models used in analyzing supply and demand in financial markets, especially in cryptocurrency and forex trading.
Explanation:
1. Rally-Base-Rally (Rally – Base – Rally)
• The price moves in a strong upward direction (Rally).
• It temporarily halts and forms a (Base) area, where equilibrium occurs between supply and demand.
• After that, it resumes rising strongly again.
• The area becomes a demand zone, where traders expect the price to return before resuming the upward movement, making it a buying opportunity.
2. Rally-Base-Drop (Rally – Base – Drop)
• The price moves in an upward direction (Rally), then temporarily halts to form a (Base) area.
• Instead of completing the upward movement, the price reverses and moves downward strongly (Drop).
• This becomes a supply zone, where traders expect the price to return before resuming the downward movement, making it a selling opportunity.
How is it used?
• Buy at demand areas when the price returns to test them.
• Sell at supply areas when the price returns to test them.
• It helps in accurately determining entry and exit points based on price behavior.
Conclusion:
This model is used by traders to identify strong areas for entering and exiting trades based on supply and demand zones, and it is an effective method in price action trading.
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