Pullback or reversal? Questions to ask before deciding

A red candle does not turn every rising market into a falling one. Start by describing the sequence of swings and the timeframe you are studying.

First, name the existing structure

In an upward trend, traders often look for rising swing highs and lows. A pullback describes movement against that prevailing direction. A reversal describes a change in the broader direction. These labels are easier to apply afterward than in real time.

Three questions for your chart

• Which timeframe defines the trend you are describing?
• Has price only moved against the recent direction, or has the sequence of swings changed?
• What observation would make you abandon your current interpretation?

Think in scenarios

Imagine a historical chart with successive swing lows at 100, 105 and 110. A move down from a recent high toward 112 does not by itself establish a reversal. A move below a prior swing area changes the questions you should ask, but it still does not guarantee a continuing decline. These numbers are illustrative.

Two timeframes can tell compatible stories

A downward sequence on a short chart can sit inside a larger upward movement. That does not mean one chart is lying. The descriptions refer to different windows. Record both timeframes before deciding that they disagree.

Mark the swing areas you used, rather than redrawing them after every new candle. If your definition of a swing changes during the exercise, note the change. Otherwise, the label can become impossible to challenge: every unfavourable observation gets a new line.

When the evidence is mixed, “unclear on this timeframe” is a complete observation. The exercise does not require a directional opinion on every candle.

A useful exercise

Cover the right-hand side of an old chart. Mark the swings you can see and write two possible next scenarios. Reveal a few candles at a time. Review how your interpretation changed, rather than scoring yourself on whether you guessed correctly.

Use the pre-trade checklist to keep the chart interpretation separate from the decision to take risk.

Further reading

CME Group: support and resistance. This note is a general educational framework, not Shailesh’s personal strategy or a signal.

Educational content only. Trading involves substantial risk of loss. See the full disclaimer.