Rally Base Rally – Bullish Continuation Pattern
Do you want to master rally base rally a supply & demand trading strategy like a pro to level up your trading?
Rally base rally trading strategy is one of the various strategies used in technical analysis to predict the future move of any asset like forex currency pairs, commodities, crypto, stocks or indices. This strategy originates from smart money concepts & its foundation lies in the concepts of Supply and demand.
In this article, we will teach you all about rally base rally trading strategy from definition to its formation and identification to its use along with visual examples.
To identify and trade rally base rally you must know about Supply and Demand.
Lets start with defining rally base rally.
What is Rally Base Rally?
Rally base rally is a powerful bullish continuation concept of supply and demand trading strategy. Rally base rally concept states that prices move in a series of rallies and consolidation. These rallies and consolidations creates a pattern that can be identified and traded easily.
The rally phase occurs when prices move sharply in buy side indicating strong demand. The base phase marked by consolidation of prices in a range as the market digest previous sharp move. The 2nd rally phase starts after the breakout of previous consolidation range and prices again move sharply to the buy side.
How to identify Rally Base Rally?
To trade a rally base rally pattern it is essential to identify and mark it correctly on price chart.
Rally base rally pattern consists of 3 main components:
(I) Initial Rally
(II) The Base
(III) Subsequent Rally
Initial rally is basically a sharp move toward buy side after that a period of consolidation in the base phase and finally a second rally after breakout of the base, shows continuation of previous bullish move.
Body to Wick Ratio of Candles for Rally Base Rally Pattern
To confirm an initial rally a trader needs to look for two or more consecutive bullish candles having a body to wick ratio of 70:30 or more. Meaning the body should cover at least 70% of the total candlestick and wick should not be more than the 30% of the total candlestick.
The base is characterized by a single or more candlesticks which show a temporary pause in the bullish momentum. The body to wick ratio of base candlesticks should be of 25:75 or less than that. Meaning the body of base candles should cover 25% or less area of total candlestick while the wick should cover 75% or more of the candlestick.
How to Trade Rally Base Rally?
To trade a rally base rally pattern you should wait for the formation of initial rally and the base. After the formation and identification of initial rally and the base you should wait for the price to break the base.
A candle closing above the price range of the base area will be considered as the breakout of base.
After the breakout of base you can take a buy trade immediately if price retests the base area. If it does not retest the base area immediately then you can wait for the price to retest the base area and you can execute a buy trade at this retest.
While trading a rally base rally pattern your stop loss will be below the low of base and for take profit you can target a 1:2 risk reward or a next resistance zone.
Other Confirmations to Execute a Trade
To execute a buy trade after breakout and retest of the base you can look for extra confirmations like.
A bullish Candlestick Pattern Confirmation can be very useful while trading rally base rally. Any bullish candlestick pattern like a hammer, morning star or engulfing will increase the probability of winning.
Volume Confirmation is also essential while trading a rally base rally. For example, a strong breakout from the base phase accompanied by high volume can signal a high probability trade entry.
Final Thoughts
While using a rally base rally in forex trading, we should keep in mind that no strategy is foolproof in forex, so you should not risk all your capital on this strategy.
Plus to mitigate your risks, you should always trade with stop loss in place to keep your equity safe.
