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Pullback

A temporary move against the prevailing trend before it resumes.

In an uptrend a pullback is a dip; in a downtrend it is a bounce. Pullbacks let trend traders enter closer to support with a tighter stop-loss than chasing the move. The question is always whether this pullback is a pause or the start of a reversal.

Depth (see fibonacci-retracement), volume (ideally lighter on the pullback), and behavior at a moving-average are the usual tells.

Example: a stock rallies from $50 to $60, then eases to $56 on declining volume over four days and turns back up. Entry near $56 with a stop at $54 risks $2 for a retest of $60 or higher.

Related: trend, retest, fibonacci-retracement, buy-the-dip

See it drawn

Original diagrams for the ideas on this page. Illustrative, not real market data.

Fibonacci retracement levels across one swingA rally from a swing low to a swing high with horizontal lines drawn at fixed percentages of that move, and a later pullback that turns around on the 61.8 per cent line.FIBONACCI RETRACEMENT OF ONE SWING0% swing high23.6%38.2%50%61.8%78.6%100% swing lowpullback holds hereIllustrative swing. The levels are fixed fractions of the move from low to high.
Fibonacci retracement levels. Take one move from a swing low to a swing high and mark off fixed fractions of it — 23.6, 38.2, 50, 61.8 and 78.6 per cent. Traders watch those lines to see how much of the move a pullback gives back; here it stalls at 61.8 per cent.
Breakout and retestPrice stalls under one level, pushes above it, comes back to touch it from above, then continues higher.pricetimeold resistancenow support1price keeps stalling2breaks above3pulls back and retests it4and carries on
Breakout and retest. Price stalls under the same level several times, pushes above it, then drops back to touch it from above before carrying on. That touch is the retest, where the old ceiling is tried as a floor. A break that falls straight back under it is a false breakout.

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