When we talk about ‘bases’ in Rally-Base-Rally (RBR) and Drop-Base-Drop (DBD) scenarios, we’re referring to consolidation areas or periods of pause in the market’s movement.
Here’s how it works:
Picture a time when price is moving upward (that’s your rally), but then takes a breather, sort of like a pit stop.
The price action starts moving sideways, not making any substantial upward or downward movement for a while. This sideways price movement is what we call the ‘base.’ The ‘base’ is usually characterized by a relatively tight range and decreased volatility.
Once this resting phase or ‘base’ concludes, the price action then continues in the direction of the initial rally.
That’s your Rally-Base-Rally.
The same concept applies to Drop-Base-Drop (DBD) zones, just in reverse.
The ‘base’ still represents a pause or consolidation, but this time it’s within a downward price movement.
So to sum it up: the ‘base’ in RBR and DBD is a resting phase where the market takes a breather before resuming its original journey.