Market pullback happen when price moves at least one bar against the dominant trend direction. Basically a pullback is a price movement that moves in the opposite direction of the trend. But it’s only a temporarily price movement before it resumes back into the main market. Pullbacks are sometimes refer to as price retracements and corrections. It doesn’t matter what you call it as long as the temporary countertrend movement resumes in the main market direction later and it does so by breaking beyond the recent price extreme. If price does not go beyond the recent extreme, then the pullback could reverse, or it could consolidate.
A pullback can be shallow of deep, and it can be fast or slow. While the depth and speed of the pullback are independent of each other, they are often influenced by the market drivers at that point in time, and no one really knows when any of them happens. As traders, instead of trying to predict the future, it is more useful to recognize these pullbacks and then perform your analysis based on how these pullbacks behave. Remember that trading is about stacking up the probabilities in our favor and this is exactly what we are trying to achieve here. By recognizing the various types of pullbacks you can pick trades that have a higher probability of succeeding. Once you have the probability in our favor, we take the trade. So to keep it simple and organized, I have grouped market pullbacks in two distinct groups.
Let’s discuss each of them:
All these patterns are useful technical indicators which can help you to understand how or why an assets price moved in a certain way.
The first and most important step is learning to recognize them.