Temporary changes in the direction of a trading instrument are included in retracement trading. Retracements should not be confused with reversals; reversals indicate a significant change in the trend, whereas retracements are simply temporary pullbacks. Trading retracements keeps you trading in the trend's direction. You are attempting to profit from short-term price reversals within a larger price trend.

You can trade retracements in a variety of ways. You could, for example, use trendlines. Let's take a look at the US500 chart below. The index is clearly in an uptrend, and the rising trendline could have provided a buying opportunity.

A retracement is defined as a temporary change in price movement against the price direction of a financial instrument, such as Forex, stock etc...