What are the types of supply and demand zones?

What are the types of supply and demand zones?

There are four different types of supply and demand structures. These structures are based on their locations in the trend. If a supply or demand zone is created inside the trend, then we have a drop-base-drop or a rally­base-rally structures, and if they are formed at reversal points then we have a rally-base-drop or a drop-base-rally structures.

Let’s define each of these formations:

Rally-base-drop (RBD)

The rally-base-drop is a structure that forms a supply zone in the market. It is characterized by a rally in price, followed by a base or consolidation and then a strong drop in price (figure 24).

We only find this structure at reversal points. In other words, the rally­base-drop is only found when the trend reverses from going up to going down.

Drop-base-rally (DBR)

The drop-base-rally is a structure that forms a demand zone in the market. It is characterized by a drop in price, followed by a base and then a strong rally in price (figure 25).

We only find this structure at reversal points where the trend is reversing from going down to going up.

Rally-base-rally (RBR)

The rally-base-rally is a structure that forms a demand zone in the market, and it is found only when the market is trending up (figure 26). It is characterized by a rally in price, followed by a consolidation and another rally up. If the market returns to this structure, the price will go up.

Drop-base-drop (DBD)

The drop-base-drop is a structure that forms a supply zone in the market, and that it is found only when the market is trending down (figure 27). It is characterized by a drop in price, followed by a consolidation, and another drop down. If the market returns to this structure it will make the price go down.