A pullback is a pause or moderate drop in a Crypto or commodity pricing chart from recent peaks that occur within a continuing uptrend. A pullback is very similar to a retracement or consolidation, and the terms are sometimes used interchangeably. The term “pullback” usually refers to price drops that are relatively short in duration – for example, a few consecutive sessions – before the uptrend resumes.
After a security has undergone a significant upward price movement, pullbacks are typically regarded as buying opportunities. For example, a stock may have a big surge in response to a favourable earnings report, followed by a pullback as traders with existing positions take profit. Positive results, on the other hand, are a fundamental signal that the stock will restart its climb.
A pullback or price correction is one of if not the most common price action after an asset reaches an ATH or just pumps for a while. It is almost guaranteed to occur. This happens for a few reasons :
- Profit taking. Believe it or not, people actually take out profits or their original investments after an ATH is reached or profit is made in general.
- Fear. An ATH is called an ATH because it is the first time an asset has reached that price and that is the highest price it has ever reached. Some fear that it will not continue to rise after it reaches an ATH is normal
- Whale manipulation. Whales love to sell at ATH to manipulate the price. A whale could buy 1k bitcoins at 62k, sell those same 1k coins at ATH 65K. If the buying volume is low enough, this could significantly affect the price of the asset, causing a dip to below where they originally bought in. The dip then sends the first 2 reasons I mentioned into action by other traders. Then the whale buys in at a much lower price.
So don’t always freak out when green days are followed by red days. If the asset you are investing in is a decent project, there is probably no need to fear.