Pullback
A pullback is a temporary move against the prevailing trend, such as a dip during an uptrend; its depth measured in percent is often called a retracement.
No trend moves in a straight line.1 Uptrends rise in steps — up, back a little, up again — and the “back a little” is the pullback. For traders, pullbacks are the most popular way to join a trend at a better price than chasing it. The hard part is telling a pullback from the start of a reversal. This entry explains how to recognise healthy pullbacks, how to enter them, and when to accept that it was not a pullback after all.
- Category
- Price Action
- Reading time
- 5 min
- Also called
- Retracement, Dip, Correction
- Updated
A pullback in plain words
If a stock rises from $40 to $60 and then dips to $52 before climbing again, the dip to $52 was a pullback. It moved against the trend for a while, but did not end it.
In an uptrend, a healthy pullback holds above the previous higher low; in a downtrend, a bounce stays below the previous lower high. See Trend and Higher Highs, Higher Lows, Lower Highs, Lower Lows.
How to trade a pullback, step by step
Confirm the trend
Pullback trading only makes sense when there is a clear trend on your timeframe and the one above it.
Mark where the pullback might stop
Old resistance turned support, a rising moving average, or a Fibonacci level such as 38.2–61.8%.2 See Support and Resistance, Moving Average and Fibonacci Retracement and Extension.
Watch the character of the pullback
Healthy pullbacks are usually slower and on lower volume than the move before. See Volume.
Wait for the turn
Enter when price shows it is resuming — a reversal candle, a break of the pullback’s short-term high. See Candlestick.
Put the stop below the pullback low
If price breaks the low, the pullback has become something bigger. See Stop Loss.
Target the previous high or beyond
The prior swing high is the first target; trail the stop if the trend continues. See Trailing Stop.
Worked examples
Example 1 — Measuring a pullback
DepthA stock rises from $40 to $60, then pulls back to $52.
| Size of the move | $20 |
| Pullback | $60 − $52 = $8 |
| Retracement | $8 ÷ $20 = 40% |
A 40% retracement of the prior move is a moderate, common pullback in a healthy trend.
Example 2 — Entering the pullback
EntryAt $52 the stock forms a bullish engulfing candle at old resistance. A trader buys at $53, stop $50.80 below the pullback low, target the old high $60.
| Risk | $2.20 a share |
| Reward to $60 | $7.00 a share |
| Reward-to-risk | ≈ 3.2 : 1 |
Buying the pullback gives a much better reward-to-risk than buying the breakout above $60 would have.
Example 3 — When it is not a pullback
ReversalAnother stock in an uptrend pulls back 65%, breaks below its previous higher low at $47, and keeps falling on rising volume.
| Previous higher low | $47 — broken |
| Volume on the decline | Rising |
| Reading | Possible trend change, not a pullback |
Deep, fast declines that break structure on heavy volume are warnings. The stop below the pullback low exists for exactly this case. See Reversal.
A pullback that holds at 50%
Pullback vs. reversal — common clues
| Aspect | Pullback | Reversal |
|---|---|---|
| Structure | Holds above the last higher low | Breaks the last higher low |
| Speed | Slower than the prior move | Fast and decisive |
| Volume | Lighter than on the advance | Heavier than on the advance |
| Depth | Often 30–60% of the prior move | Often most or all of it |
| Higher timeframe | Trend still intact | Trend weakening or turning |
Why traders focus on pullbacks
Better entries
Buying during a pullback rather than after a breakout gives tighter stops and bigger reward-to-risk.
Trading with the trend
Pullback entries keep you aligned with the larger move. See Trend Following.
Clear invalidation
The pullback low is a natural stop level.
Adding to winners
Pullbacks offer planned points to add to an existing position. See Pyramiding.
Advantages and disadvantages
Advantages
- Better prices than chasing breakouts.
- Clear stop placement below the pullback low.
- Keeps you on the side of the main trend.
Disadvantages
- Some pullbacks turn into reversals.
- Strong trends sometimes barely pull back, so you miss them.
- Judging depth and timing is partly subjective.
- “Buying the dip” in a downtrend is catching a falling price.
Going deeper
Read as far as you need. Each level builds on the one before it.
Pullback, retracement, correction
Beginner
These words overlap. Pullback and retracement usually describe short moves against a trend; correction is often used for larger declines of around 10% or more in an index. See Bear Market.
Pullbacks on two timeframes
Intermediate
A pullback on the daily chart is often a full downtrend on a 15-minute chart. Many traders enter when the lower timeframe turns back in the direction of the higher one — for example a 15-minute higher low during a daily pullback. See Timeframe.
Pullbacks into value
Advanced
Pullbacks that reach a cluster of references — an old breakout level, a rising average and a retracement level together — tend to attract more interest from traders than isolated levels. See Confluence.
Common mistakes
Buying dips in a downtrend
In a downtrend, dips are the trend, not pullbacks.
Entering before the turn
Buying as price is still falling often means buying too early. Wait for a sign of resumption.
No stop below the low
Without it, a pullback that becomes a reversal can do serious damage.
Expecting the perfect level
Pullbacks rarely stop exactly at a line; treat levels as zones.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- A pullback is a temporary move against the trend.
- Healthy pullbacks hold above the last higher low, often on lighter volume.
- Enter on signs of resumption, with a stop below the pullback low.
- Pullback entries usually offer better reward-to-risk than breakouts.
- If the structure breaks, it was not a pullback — exit.
Frequently asked questions
How deep is a normal pullback?
What is the difference between a pullback and a reversal?
Is “buy the dip” a strategy?
Further learning
- Trend
The context that makes a dip a pullback.
- Fibonacci Retracement and Extension
Common reference levels for pullback depth.
- Swing Trading
The style that trades pullbacks most often.
- Breakout
The alternative way to join a trend.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
- Fidelity. Basic concepts of trend (opens in a new tab) Checked .
- StockCharts ChartSchool. Support & Resistance (opens in a new tab) Checked .
Read more elsewhere
- Trading Metrics (our sister site): Fibonacci Retracement (opens in a new tab)
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. Trading Metrics is our sister site, under the same ownership; we are not affiliated with any other publisher linked above. Last reviewed . Report an error or request a source credit.