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.
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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.