#MarketPullback
A market pullback is a situation where stocks in a bullish trend experience a sharp decline. The pullback can happen within a short period such as a day or go on for several months. Being very common situations within stocks (but also other assets), understanding how they work and how to generate profits from them is a very valuable point for day traders.
In this article, we will look at what market pullbacks are and some of the top strategies to trade them.
A stock market rally is a situation where equities are in a strong bullish trend. A good example is what happened after the stock market crash of 2020. The market dropped sharply after the World Health Organization (WHO) announced that Covid was a global pandemic. That initial decline was part of a market pullback.
After that, stocks staged a bullish rally, helped by the accommodative Federal Reserve and strong quarterly earnings. As the market rallied, several pullbacks happened, as shown below.
There are three main types of a market pullback.
First, there is the normal one that happened as part of a major stock market rally.
Second, there is a market correction. A market correction happens when a stock market crashes by about 10% from its highest point.
Finally, there is a bear market, which happens when a stock or the broad market declines by more than 20% from its highest point.
It is worth noting that a stock market pullback is mostly looked at in form of indices like the S&P 500 and Dow Jones. A stock one happens for a single stock like Peloton and Apple.