Updated on March 8, 2023
The term pullback in technical analysis refers to a temporary reversal in the direction of a price trend. This occurs after a sustained move in a particular direction and when prices move against the trend for a short period of time and subsequently resume their original direction.
When does pullback occur?
A pullback in an uptrend occurs when prices fall back from their highs before moving higher again. Similarly, a pullback in the downtrend occurs when prices move higher from their lows before falling again.
How to use pullbacks?
Pullbacks occur in the normal course of market behavior. They can provide traders with a low-risk entry opportunity to enter a trade in the direction of the trend. Pullbacks often occur as a result of profit-taking by traders or investors who bought at higher levels and provide an opportunity for new traders to enter the market at a more favorable price.