What is a pullback in trading?
In one line: A pullback is a short move against the main trend, like a dip in an uptrend, before price carries on in the trend's direction.
A simple example
A stock is in an uptrend. Its last dip stopped at $104. Then it climbed from $104 to $110.
Now it slips back to $106. That's a pullback. The trend is still up, because price hasn't broken below the last dip at $104.
If it turns up again from $106 and moves past $110, the uptrend carries on, with a new higher low at $106.
Why traders wait for pullbacks
Buying at $110, right at the top of a run, means your stop has to sit far away. With the stop at $103.50, just below the last dip, that’s $6.50 of risk a share.
Buying near $106, with the same stop at $103.50, is $2.50 of risk. Same idea, same chart, a much smaller risk. That changes the risk-reward ratio a lot. Try both versions in the risk-reward calculator.
That's a math example, not a promise. The pullback can keep going and become a loss.
When a pullback stops being one
The line is the last higher low. If a candle body closes below $104, this is no longer a dip in an uptrend. The pattern of higher lows is broken, and the trend is in question.
Write that line down before you trade the pullback. It's both where the idea is wrong and a natural place for your stop loss.
A common mistake
Buying every dip. Not every drop is a pullback. If the bigger chart is turning down, a "dip" can be the start of a new downtrend.
Check the bigger timeframe first, and only buy dips while the higher lows are holding. Our guide on higher highs and higher lows shows how to track them.
Questions
What's the difference between a pullback and a reversal?
A pullback is a pause that holds above the last higher low. A reversal breaks it and the trend changes direction.
How deep can a pullback go?
There's no fixed size. As long as it stays above the last higher low, many traders still call it a pullback.
Does a pullback happen in downtrends too?
Yes — it's a short bounce up that stays below the last lower high.
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