Price Action Glossary: Pullback, Retracement, Reversal, Reversal-Failure

These four terms are constantly conflated. They describe distinct price behaviors with distinct trading responses. The definitions below are the operational versions used by professional price-action traders.

Pullback

A temporary move against the prevailing trend that stays within the prior impulse leg. On an uptrend, a pullback is a down-move that holds above the prior swing low. Key attributes:

• Depth: typically 38.2%–61.8% of the impulse (Fibonacci zone).
• Duration: 2–6 bars on the trading timeframe.
• Volume: lower than the impulse leg.

Pullbacks are continuation signals — you buy the dip in an uptrend, sell the rally in a downtrend.

Retracement

Often used interchangeably with pullback, but more precisely refers to any counter-trend move measured by Fibonacci ratios. A retracement becomes a reversal when it exceeds 100% of the prior impulse (i.e., breaks the swing origin).

The 61.8% retracement is the operational line. A move beyond 61.8% weakens the trend thesis; a clean break of the origin confirms reversal.

Reversal

A confirmed change in trend direction, defined structurally: a lower-low after a higher-high (or vice versa). A reversal requires:

1. The prior trend's most recent swing to be broken (BOS against trend).
2. A new swing in the opposite direction.
3. A pullback that holds the new swing high/low.

Without all three, what looks like a reversal is usually a deep pullback. Many traders lose money entering "reversals" that are just 70% retracements.

Reversal-Failure

A reversal setup that triggers (breaks structure) but fails to follow through — price snaps back into the prior trend. This is a high-probability continuation signal because trapped reversal traders must cover.

Failure signals:

• Break of structure holds for fewer than 3 bars.
• Reclaim of the broken level within the same session.
• Volume on the failure bar exceeds the breakout bar.
• Wick exceeds 60% of the candle range on the reclaim.

Trade the failure by entering on the reclaim with a stop beyond the false-break extreme. Risk-reward typically runs 1:3 or better because trapped counter-trend traders provide fuel.

Operational distinction

• Pullback → continuation entry.
• Retracement > 61.8% → stand aside; trend in question.
• Reversal → wait for structural confirmation, then trade new direction.
• Reversal-failure → trade with original trend.

Calling a 50% retracement a "reversal" is the single most common price-action mistake. Use structure, not depth, to define the term.