Retracement

Retracement refers to a temporary reversal in the price movement of a financial asset, such as a stock or currency, that goes against the prevailing trend. Unlike a full reversal, a retracement is short-term and typically seen as a pause before the asset resumes its original direction. Traders use retracements to identify potential entry or exit points, often employing tools like Fibonacci retracement levels to predict where the asset might reverse back into the prevailing trend.

Example

A stock experiences a retracement after a long upward trend, pulling back 5% before resuming its upward momentum. Traders might use this retracement as an opportunity to buy.