Pullback
A temporary move against the prevailing trend before it resumes.
Also called: retracement · dip
In plain language
A pullback is a pause, not a reversal. Price gives back part of a move as early participants take profit, then continues in the original direction.
The practical difficulty is that a pullback and the start of a reversal look identical while they are happening. The distinction only becomes clear afterward.
Trading pullbacks is attractive because it offers entry closer to a structural level, which shortens stop distance and improves risk/reward relative to chasing.
Why it matters
Entering on a pullback rather than at the extreme of a move usually tightens the stop, which allows a larger position at the same dollar risk.
Common mistakes
- Assuming every pullback resumes the trend.
- Adding to a losing position and calling it "buying the dip".
- Entering mid-pullback with no defined level for the stop to sit beyond.
Keep exploring
These concepts are connected. Understanding one usually makes the next one easier.
A sustained directional bias in price, built from a repeating pattern of highs and lows.
A price area where buying has repeatedly been strong enough to stop a decline.
The price at which you open a position.
A swing low that sits above the previous swing low, showing buyers stepping in earlier.
Horizontal levels drawn at set percentages of a prior move, used to anticipate pullback depth.