In the financial markets, a Retracement is a temporary price movement in the opposite direction of the overall trend.For example, if a stock is in an uptrend (meaning it has been consistently increasing in price), a retracement would be a temporary decrease in the stock's price, before the uptrend resumes. Retracements are often smaller in magnitude than the overall trend, and they can occur for a variety of reasons, such as profit-taking by traders or a temporary shift in market sentiment.Retracements can be identified using technical analysis tools such as trend lines and Fibonacci retracement levels. These tools can help traders and investors identify potential levels where a retracement may occur and potentially enter or exit trades.It's important to note that a retracement is different from a reversal, which is a change in the direction of the overall trend.For example, if a stock that was in an uptrend starts to consistently decrease in price, it could be considered a reversal from an uptrend to a downtrend. Reversals can be more significant than retracements and may require a different trading strategy.
