A pause against the main advance:a pullback is a brief backward glance.
A temporary move against the direction of a prevailing trend.
Whether a move was a pullback or the start of a reversal is known only afterwards, because the two look the same while they are happening.
In plain words
A pullback is a short move against the main direction of a market. In a rising market it is a dip; in a falling market it is a brief rise. The word assumes that the main direction then carries on, which is only known afterwards.
See it move
Reached: Pullback
Why it matters
Traders who follow trends watch pullbacks because they bring the price back towards earlier levels. The difficulty is that a pullback and the start of a reversal look the same while they are happening.
Worked example
An example only. The figures are round and invented for the arithmetic: they are not market prices.
A pair rises from 1.1000 to 1.1100, slips to 1.1060, then climbs to 1.1150.
- 1First rise1.1100 − 1.1000 = 100 pips.
- 2Dip1.1100 − 1.1060 = 40 pips, which is 40% of the rise.
- 3The low of the dip, 1.1060, is still above the starting point of 1.1000.
Because the dip stopped above the earlier low and the price then made a new high, it is described afterwards as a pullback within an uptrend.
A common mistake
A pullback is sometimes described as a better price at which to join a trend. That is how some traders use it, not a property of the market: some dips keep going and become reversals.
Check yourself
Learn more
- Academy lessonSupport and resistanceWhat support and resistance are, how horizontal levels, trendlines and moving averages are drawn, and what breakouts and false breakouts look like.
- Academy lessonFibonacci retracementHow Fibonacci retracement levels are derived and drawn, what each level is conventionally taken to mean, and how extensions and clusters build on them.
Educational information, not investment advice or a recommendation to trade.