What is the primary characteristic of a retracement?

The primary characteristic of a retracement is that it typically represents a temporary reversal in the price direction within an ongoing trend. Specifically, retracements often do not exceed a significant portion of the previous movement, commonly observed as being less than 50% of the preceding price move. This allows traders to identify a potential continuation of the original trend after the short-term pullback.

When a retracement occurs, it serves as an opportunity for traders to enter positions at a more favorable price before the dominant trend resumes. Understanding that a retracement is generally a brief pause in the direction of the trend is crucial, as it differentiates it from a full reversal. A retracement is expected to be a smaller counter-move rather than a complete reversal of the previous price action, which reinforces the idea that the overall trend is still intact.