In technical analysis of stock charts, a reversal and a pullback are two distinct concepts that describe different price movements.
A reversal occurs when the trend of a stock changes direction from up to down, or from down to up. It is a significant change in the direction of the stock’s price movement, often indicating a shift in investor sentiment. Reversals are typically identified by the formation of chart patterns such as head and shoulders, double tops or bottoms, or other technical indicators.
Pullback vs Reversal
On the other hand, a pullback is a temporary decline in the price of a stock during a larger uptrend. It represents a pause or correction in the trend before the stock resumes its upward movement. Pullbacks are typically identified by a retracement of a portion of the prior advance, often to a key support level or technical indicator like the 20-day moving average.
In summary, a reversal signals a significant shift in the trend of a stock, while a pullback represents a temporary retracement within an ongoing trend.