Rally Base Drop Signals [LuxAlgo]

The Rally Base Drop indicator is built around the Supply and Demand (SND) concept known as "Rally, Base & Drop" Candles. These candle types are commonly used in this trading approach to identify price structure.

This indicator highlights bars by labeling them as "Rally," "Drop," or "Base" candles. It also identifies specific sequence patterns formed by these candles.

🔶 USAGE



The Rally, Base, Drop candlestick approach is a straightforward method for identifying price action structure.

Candles are categorized into three types, which are then analyzed to understand market structure and Supply/Demand levels.

• Rally: Two or more consecutive bullish candles.
  
• Drop: Two or more consecutive bearish candles.
  
• Base: A single bullish or bearish candle that breaks the previous trend.
  

🔹 Rally & Drop Candles

These candles show clear directional momentum and signal whether demand or supply is dominating. They are helpful when identifying trends, as they highlight strong price movement.

🔹 Base Candles

In most SND strategies, "Base" can have several interpretations.

Typically, base candles represent short periods of consolidation that test the trend before continuation. They can also be found at turning points (tops or bottoms).

For this indicator, a base candle is simply one that does not follow the direction of nearby candles or is where a Drop and Rally meet. Multiple base candles often reflect indecision in the market, suggesting a temporary balance between buyers and sellers.

🔹 Reversal Sequences

• Rally-Base-Drop (RBD)
  
• Drop-Base-Rally (DBR)
  

In Supply and Demand analysis, these sequences are considered reversals. They mark zones where buyer and seller activity has shifted, which can lead to future price reactions. These areas are known as "Supply or Demand Zones" and are often revisited by price, making them useful for trade setups.

🔹 Continuation Sequences

• Rally-Base-Rally (RBR)
  
• Drop-Base-Drop (DBD)
  

Continuation sequences show a brief pause in the trend, followed by further movement in the same direction. In SND terms, they represent zones where orders accumulate before a continuation move. These are typically used to join ongoing trends, as they indicate sustained interest from buyers or sellers.

🔶 DETAILS

🔹 Color Modes

The script includes three color modes. "No Color" is self-explanatory, while the other two options relate to how candles are detected.

A Rally or Drop requires at least two candles to be successfully identified. As a result, detection occurs on the second candle. However, the full Rally or Drop includes both candles.

Two coloring methods are available:

• Full Color: Once a Rally or Drop is detected (on the second bar), both candles are colored, starting from the first. This reflects the full pattern.
  
• Color on Detection: Only the second candle (where detection occurs) is colored. This avoids changing past bars and may be useful for live analysis.
  

🔶 SETTINGS

• Sequences: Select which sequences to display on the chart.
  
• Bar Color Logic: Choose the preferred bar coloring method.