What is the definition of A Retracement?

A retracement is when the price of an asset or index moves against the general trend and reverses direction, i.e. during a rally it falls. Usually a retracement is only temporary and the general trend will continue after a period of time.

If a trader is able to determine the level at which the retracement will stop and the price will move in the direction of the trend again, this can present an excellent buying opportunity. Traders often use Fibonacci to work out the price levels where the trend will reassert itself.