Setting entry and exit points using Rally-Base-Rally (RBR) and Drop-Base-Drop (DBD) zones revolves around understanding supply and demand dynamics in the market.
For an RBR zone (demand zone), your entry point should ideally be near the base, where demand is expected to overcome supply, pushing prices upward. Remember, this is where buyers have previously stepped in and caused a price rally, so it’s likely they’ll do so again.
In terms of your stop loss, it’s usually wise to set it just below the base.
That’s because if price breaks below this level, it’s a sign that demand at this zone is not as strong as we thought, and we may be wrong about the trade.
Your exit point or profit target could be at the next significant supply zone (DBD) where sellers have previously stepped in and caused a price drop.
You’re essentially trying to ride the price from one zone to the next.
Now, for a DBD zone (supply zone), it’s the other way around.
Your entry point should be near the top of the base, where supply is likely to exceed demand, causing prices to fall. Your stop loss should be just above the base, as if price breaks above, it signals that there’s not enough selling pressure, and the trade idea might be invalidated.
And again, your exit point or profit target could be at the next significant demand zone (RBR), trying to capitalize on the price movement from one zone to the next.
But here’s the thing: No matter how strong an RBR or DBD zone looks, always combine the zones with a good understanding of market context and confirmation from price action.
- Are you seeing rejection candles at these zones?
- Is there a larger trend in play?
- Have any engulfing candles formed?
All these elements will help to increase the odds of your trades.
Trading is all about probabilities, not certainties.