Markets move in waves called retracements. These waves have up and down trends. Notice in the above diagram, that the market is in an overall uptrend (considered a Bull Market), but that within the uptrend, there are small areas where the market falls back, or "retraces"; each time establishing a new higher high.

 

The following chart displays an example with a down trend (when a market is in an overall down trend it is considered a Bear Market). In this chart you will see how the market made lower highs and lower lows while still maintaining the overall down trend.



Notice how far back those retracements went, before they continued on in their original direction... it is about 50% of the last move.



Markets have a tendency to retrace half or 50% of the last move as well as in overall long-term trends.

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