what is a retracement 
a retracement is a technical term used to identify a minor pullback or change in the direction of a financial instrument such as a stock or index retracements are temporary in nature and do not indicate a shift in the larger trend understanding a retracementa retracement refers to the temporary reversal of an overarching trend in a stock s price distinct from a reversal retracements are short term periods of movement against a trend followed by a return to the previous trend the chart below illustrates the share price of general electric co it is showing that the stock is in a downtrend however there are points on the chart that indicate that the price is rising which would be considered a retracement image by sabrina jiang investopedia 2021a retracement by itself does not say much however when combined with other technical indicators it can help a trader identify if the current trend is likely to continue or if a significant reversal is taking hold a retracement should be used with other technical indicators and never alone if not used correctly it could cause the analysis to be misguided retracement vs reversalit is essential to determine the difference between a reversal and a short term retracement a retracement is not easy to identify because it can easily be mistaken for a reversal even worse is if a reversal is mistaken for a retracement the chart below shows the s p 500 during 2018 when a significant uptrend took place between april and october there are three retracements identified on the chart although there were a series of smaller ones as well as the s p 500 was rising to record highs 