What is Pullback?
A pullback is a temporary reversal in the direction of a stock's price within a larger trend, offering traders an opportunity to enter in the direction of the trend at a better price.
Pullback Explained
Pullbacks are a normal and healthy part of trending markets. They occur when some traders take profits, creating temporary selling pressure. Trading pullbacks is generally considered lower risk than chasing breakouts because you're entering at a support level with a clearly defined risk point.
Real-World Example
A stock has rallied from $80 to $100 in a strong uptrend. It pulls back to $92, near its 10-day moving average. A trader buys at $92 with a stop at $88, expecting the uptrend to resume. The stock bounces and continues to $110.
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