Pullback
When a market that has been rising dips for a short time, how do we tell that dip apart from a real reversal?
In plain words
A pullback is a temporary move against the prevailing direction. In an uptrend, it is a brief fall that does not break the trend; in a downtrend, it is a brief rally. The term describes the move's size and duration relative to the larger direction, not any fixed percentage.
Why it matters
Traders on the prevailing side often treat pullbacks as cheaper entry points, which makes them crowded areas where stops are clustered. Distinguishing a pullback from a reversal matters because the two require opposite responses to the same direction of price.
In a real week: ETH, week of 1 March 2021
ETH's four prior weekly returns were 22.79%, 11.73%, 7.42% and then -26.6%, the last being a pullback against the prior up-run. In the week starting 2021-03-01, ETH opened at 1418.67, dipped to its low of 1409.91 on Mon, and closed at 1726.16, up 21.67%, finishing in the upper third of the week range at 97.5. The -26.6% week proved temporary.
A common mistake
Calling every dip a pullback. A pullback is defined by the larger trend resuming afterwards; until it does, the move could equally be the start of a reversal.