Retracement

What is retracement?

A term that describes a brief reversal in the direction of a company's share price.

For example, a company's stock might rise by 10% during a given day. But despite this overall upward trend, the price may dip slightly at certain points of the day. These short-term reversals are known as retracements.

Where have you heard about retracement?

The term often crops up when market analysts are predicting the future direction of a particular stock. When the movement of a stock changes, they must consider whether it's just a brief retracement in a wider trend, or a major adjustment that reflects the start of a new trend.

What you need to know about retracement...

If you look at a chart of a stock's price direction over a given day, it's unlikely that it'll show a continuous movement upwards or downwards. Even if the stock has jumped in value, it's likely to have edged backwards at certain times.

These small reversals in a stock's price are viewed as short-term pauses for breath before it continues on its original trend. As a result, a retracement doesn't mark the end of the larger trend.

Retracements can refer to either upward or downward movements.