Pullback
A pullback is a temporary reversal within a larger trend—a brief pause or dip that doesn't change the overall direction. It's the market catching its breath.
Understanding the Concept
Nothing goes straight up, not even during bull markets. Pullbacks are healthy. They shake out weak hands and give smart traders entry points. The trick is distinguishing a pullback from a reversal. Pullbacks in strong uptrends typically retrace 30-50% of the prior move and find support at key levels (moving averages, Fibonacci levels). They're usually sharp and fast—price drops quick but recovers quick. Reversals are slower, grindier, and break major support. If you're scared of pullbacks, you'll never hold winners. If you can't recognize them, you'll buy tops thinking it's just a dip.
Real-World Example
Bitcoin rallies from $40k to $48k in five days. It pulls back to $44k (50% retracement) and bounces off the 20-day MA. That's a healthy pullback, not a reversal. You add to your position at $44k.
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