Retracement, correction or reversal?

8 min 55 XP

A trend moves in two gears

Every trend alternates between two kinds of move. The impulse is the strong leg in the trend’s direction: big bodies, little overlap, conviction. The correction is the weak leg against it: small bodies, choppy, overlapping candles, low conviction. Price impulses, then corrects, then impulses again. Learn to feel the gear change and you can read any trend.

Impulse (with trend)

Large bodies, strong closes.
Little overlap, moves fast.
This is the trend showing its hand.

Correction (against trend)

Small, overlapping candles.
Slow, choppy, three-wave drift.
A pause — not a new trend.

The three words, defined

A retracement (or pullback) is a small, temporary move against the trend that does NOT break structure — the trend then resumes. A correction is a larger, deeper pullback, often sideways and time-consuming, but still inside the bigger trend. A reversal is different in kind: structure actually breaks, the trend changes direction. The first two are opportunities to join the trend; the third is a signal to get out or flip.

The one line that separates them

The prior swing low (in an uptrend) or swing high (in a downtrend). A pullback or correction HOLDS it; a reversal BREAKS it. That single level turns "is this a dip to buy or a knife to dodge?" into an objective question.

Impulse = strong leg with the trend; correction = weak leg against it.
Retracement / pullback = shallow, temporary, structure intact.
Correction = deeper or sideways, still inside the bigger trend.
Reversal = structure breaks and the trend changes — a different animal.
The prior swing high/low is the line that tells them apart.

Praxis.

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Level 2: Technical Analysis

Module 5: Pullbacks, Retracements & Retests · Lesson 67/144