A pullback describes price action when there is a tendency of a trending market to retrace a portion of the gains before continuing in the same direction.

It is a temporary pause or dip in an asset’s overall trend.

The term is sometimes used interchangeably with “retracement.”

A pullback is a short-term move in the opposite direction of the longer-term trend, which can offer an opportunity to join an uptrend at a relatively favorable price.

Trend Retracements

A pullback tells you that the overall market trend has temporarily paused.

This could be down to several factors, including a momentary loss of trader confidence after certain news or economic data releases.

A pullback should not be confused with a reversal, which is a more permanent move against the prevailing trend.

You’ll need to determine whether the price drop is a pullback rather than an outright trend reversal.

The most significant difference between pullbacks and reversals is that a pullback is temporary, while a reversal is a more permanent change in the direction of an overall trend.

Pullbacks usually last for a few trading sessions, while a reversal can signify a complete change in market sentiment.

Several indicators, including moving averages and pivot points, can help you to determine whether a pullback is actually a reversal.

These technical indicators highlight levels of support. If the pullback breaks through this level of support, it is likely to be a reversal.