Pullback

A pullback is a temporary reversal in the direction of a security's price within a larger prevailing trend, typically representing a brief period of profit-taking or consolidation before the trend resumes. In an uptrend, a pullback is a short-term decline; in a downtrend, it is a short-term rally (also called a "bounce" or "relief rally"). Pullbacks are distinguished from reversals by their shallow depth, short duration, and the fact that the overall trend structure remains intact. Common pullback targets include: previous resistance that becomes support (role reversal), moving averages (the 20-day, 50-day, or 200-day are popular), Fibonacci retracement levels (38.2%, 50%, 61.8%), and volume profile levels. Professional traders prefer buying pullbacks rather than breakouts because pullbacks offer better risk-reward ratios — the stop-loss is closer (just below the pullback low) and the potential reward is larger (to the next trend target). Volume typically decreases during pullbacks (showing lack of selling conviction) and increases when the trend resumes. A pullback that exceeds 61.8% of the prior move may no longer be a pullback but potentially a trend reversal.