Understanding Market Pullbacks: Cycle vs. Trend Change

A market pullback is inevitable and part of the push-pull of the market in general. Pullbacks are mostly understood as cyclical events. It is best to know a market's cycle to gauge whether or not the pullback is part of a new trend.

Bull market

In a bull market there are three major up waves. A retracement is another word for a pullback when it's part of a bull market cycle. Typically, a retracement can be anywhere from 5% to more than 60% of the value lost in the equities. The pullback can range from anywhere between these figures, depending on how the markets are moving.  You should consider the pullback as a principle of cyclical movement and expect for it to happen.

Bear market retracement   

A bear market retracement is an upwave in a down market. Just like the bull market has a pullback, bear markets have up waves. In general, the market should have a pullback no greater than 10%. On the other hand, the commodities can give a pullback of as much as 60 percent.