Glossary
Pullback
A short, shallow decline against a prevailing uptrend, which traders often treat as a pause rather than the end of the trend.
On this page
A pullback is a brief drop in price within a larger uptrend. The stock gives back part of its recent gain, then the advance resumes. Traders care about the difference between a pullback and something worse, because a pullback can offer a lower-risk entry into an existing trend, while a true trend change can turn the same "dip" into a steadily growing loss.
How it works
There is no official size for a pullback, but by common usage it is smaller than a Correction, which is often defined as a 10% to 20% decline from a recent high. Pullbacks typically retrace a fraction of the prior advance and stall near a level traders watch:
- a rising Moving average, such as the 20- or 50-day,
- an earlier breakout level, now acting as Support,
- a Fibonacci retracement level such as 38.2% or 50% of the prior swing.
Pullback or reversal?
The hard part is telling them apart in real time. Signs that a decline may be more than a pullback include:
- the price breaks below the last higher low, ending the uptrend's structure,
- selling comes on heavy Trading volume while the bounces come on light volume,
- momentum indicators such as RSI fall below 40 and fail to recover, or
- the decline is driven by a change in fundamentals, such as a guidance cut.
Many traders who buy pullbacks place a Stop-loss order just under the swing low, so a failed pullback costs a defined amount. The term is also used in reverse: a short bounce in a downtrend is sometimes called a pullback, though "relief rally" is more common.