Market structure
Impulse and retracement
Trends move in pushes with pullbacks between them.
Widely taught. The Exchange can test it on public price history and will say what it finds.
A description of how trends look. The trading rules built on it are untested as stated.
What it is
An impulse is a strong move in the trend's direction. A retracement is the smaller move back against it. Reversal describes the trend ending; continuation describes the push resuming after a retracement.
What it suggests
Entering at the start of a retracement means entering while it is still going. Traders usually look for the retracement to end at a level before acting with the trend.
How to check it
Identify the last impulse, the retracement, and the level the retracement is approaching.
Common mistakes
- Entering with the trend in the middle of a pullback.
Related lessons
Written in our own words. Education only, not financial advice.