4 Key Candle Structures Used To Identify Imbalances on a Price Chart(important)
4 Key Candle Structures Used To Identify Imbalances on a Price Chart
There are 4 key structures used to identify imbalances on a price chart
Drop Base Drop (DBD) – this is a bearish continuation pattern, sell on the relief bounce to this supply
Rally Base Rally (RBR) – this is a bullish continuation pattern, buy on the retracement to this demand
Drop Base Rally (DBR) – this is a bullish reversal pattern, you want to get long after a sell off into a strong DBR demand
Rally Base Drop (RBD) – this is a bearish reversal pattern, you want to sell after a relief bounce into a strong RBD supply
Drop Base Drop (DBD)
This is a bearish continuation pattern, sell on the relief bounce to this supply
Rally Base Drop (RBD)
This is a bearish reversal pattern, you want to sell after a rally into a strong RBD supply.
Starting from the 29 low by the (A), notice how price rallies without stopping all the way up to the 78 area. From here, price BASES, then all of a sudden collapses. That tells me that there is a surplus of sell orders waiting to be filled and this makes it an either A) high probable area to scalp a short from or B) take profits if long and watch for re-entry on the pull back. Look what happens when price retest the fresh rally base drop supply zone, you get immediate rejection for almost 20 points. The sell orders that did not originally fill on the sell off because price fell too fast hit the market when the fresh level is tested, and you see an immediate reaction. Now look what happens after the rejection from 72 down to 53, we get a second attempt to breach the supply that was tested already and it busts through. This is because majority of the sales filled when price rejected, making it a very low probable trade if you tried to short a non-fresh supply zone.
Drop Base Rally (DBR)
This is a bullish reversal pattern, buy when price sells off into this supply.
Rally Base Rally (RBR)
This is a bullish continuation pattern that forms in up trends. Buy on a return to this imbalance