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Issue №98  ·  ~7 min read

The pullback is the first non-foundational pattern this newsletter covers. Distinct from the four base patterns (cup-with-handle, double bottom, flat base, ascending base) and the VCP. It's a shorter-duration, higher-frequency setup that forms within an established uptrend, not at the start of a new advance. Today's introduction covers what it is, why it works, and how it differs from base patterns.

Today you'll learn

The earlier Patterns of the Week introduced the four base patterns and the VCP, all of which are base patterns (multi-week consolidations that precede the start of a new advance). The pullback is a different kind of pattern: a brief pause within an existing advance, not a base preceding a new one.

The pullback is a brief consolidation within an established uptrend that respects a specific moving-average or technical-level support, then resumes the prior uptrend.

The structure:

The total pattern duration is much shorter than a base pattern, typically 1-3 weeks vs the 5-65 weeks a base can take. The pullback's compressed time frame is what makes it a higher-frequency setup; you can find pullbacks in the same stock multiple times per year as it stair-steps through its trend.

The most-cited modern framing of the pullback is the TraderLion "Hedge Fund Perfect Pullback" framework, a video that has accumulated over 184,000 views as of 2026 and serves as the canonical educational reference. The framework formalizes the moving-average support level, the volume contraction requirement, and the continuation-breakout entry trigger.

The pullback's mechanic is the same supply-demand dynamic that underlies all chart patterns, supply being absorbed by demand at specific price levels, but expressed across a much shorter time frame than base patterns.

In a base pattern, the supply being absorbed is overhead supply from prior buyers who are waiting to "get back to even" or take profits at higher prices. The base lasts long enough for that overhead supply to fully clear; the breakout signals the supply has been exhausted.

In a pullback, the supply being absorbed is much more limited. The stock is already in an established uptrend, which means most of the structural overhead supply was cleared during prior base patterns. The supply available now is mainly short-term profit-taking, traders who bought during the prior advance and are taking gains during the pullback. This profit-taking supply is light enough to be absorbed by patient buyers within 1-3 weeks rather than 5-7 weeks.

The moving-average support level is where patient buyers consistently step in. The 50-day moving average is the most commonly-respected support because it's tracked by essentially every institutional algorithm and discretionary trader as a measure of intermediate-term trend. When a stock pulls back to the 50-day, institutional buying programs that use that level as a buy trigger become active. The buying typically arrests the decline and produces the bounce that initiates the continuation breakout.

The 21-day EMA serves a similar function on a shorter time scale and is favored by some traders who want to capture pullbacks that don't go as deep as the 50-day. The anchored VWAP from a prior key event (an earnings gap, a major breakout day, an IPO day) serves a different function: it represents the average price participants paid for the stock since that key event, and traders often consider it a meaningful support level because it represents "break-even" for the cohort that bought near the anchor date.

When the support holds on contracting volume, the pattern is healthy. When the support breaks on heavy volume, or the pullback drags on for 4+ weeks without contracting, the pattern is failing.

Pullbacks tend to respect one of three specific moving-average or technical-level supports. Knowing which one to expect for any given stock helps you anticipate where the bottom of the pullback is likely to form.

The 50-day moving average. The most commonly-respected support. Stocks in healthy intermediate-term uptrends typically hold the 50-day on pullbacks and bounce from it. Pullbacks to the 50-day are usually 5-12% from the recent local high. This is the bread-and-butter pullback support level for most CAN SLIM-style stocks.

The 21-day exponential moving average (EMA). A shorter-time-scale support level favored for stocks in stronger or faster-moving uptrends. Pullbacks to the 21-day EMA are usually 3-7% from the recent local high, shallower than 50-day pullbacks. Stocks that consistently respect the 21-day EMA are typically in particularly strong trends; the shallower pullbacks reflect the eager buying.

The anchored VWAP (AVWAP). A volume-weighted average price calculated from a specific anchor date (typically a major event like an earnings gap, breakout day, or IPO date). The AVWAP represents the average price participants paid for the stock since the anchor date, a reference level that institutional algorithms often use as a buy trigger. Pullbacks to the AVWAP from a recent key anchor (e.g., the AVWAP from the most recent earnings report) often produce clean continuation entries. The Brian Shannon framework (covered in M10 W2) is the canonical AVWAP reference for the BiST methodology.

For most BiST readers starting out, focus on the 50-day moving average first, add the 21-day EMA once that's reflexive, and save the AVWAP for M10 W2's Brian Shannon deep-dive.

Arista Networks (ANET), a networking-equipment maker sitting at the center of the AI data-center buildout, produced a real, if modest, pullback this summer. From a close of $151.76 on June 10, the stock climbed roughly 39% over about nine weeks to $210.50 by August 12, a genuine established uptrend.

From that high, ANET pulled back for six trading days to a close of $183.75 on August 20, a 12.7% decline. The low landed closer to the stock's short-term (21-day) average than its 50-day line, consistent with the "strong trend, shallower pullback" pattern this lesson describes, and volume contracted through the decline. The stock then turned, closing back above $200 within four trading days on a real, if modest, pickup in volume.

Worth saying plainly: this wasn't a textbook-perfect setup. The breakout's volume expansion was real but not dramatic. Most actual pullbacks look like this, not like the cleanest diagram, and that's the more useful thing to internalize than any single flawless example.

Sundays are observational. The pullback is in some ways easier to identify than the foundational base patterns because the structure is more compact and the support level is explicit (a moving-average line on the chart).

Two diagnostic questions to ask:

Question one: is the stock in a clear established uptrend? Look at the 6-month chart. Is the stock above its 50-day moving average? Has it been making higher highs and higher lows over the past several months? If yes, any current pullback may be the pullback pattern. If no, if the stock is in a sideways consolidation or a downtrend, the structure isn't a pullback (it's something else, possibly the start of a base or a continuing decline).

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Question two: is the pullback approaching a moving-average support level on contracting volume? Look at the most recent 2-3 weeks. Is the stock declining toward the 50-day MA (or 21-day EMA)? Is the volume during the decline meaningfully lower than the volume during the prior advance? If yes, the pullback is structurally healthy and the continuation breakout from the support level is the high-probability entry. If the support level is being broken or volume is heavy on the decline, the pattern is failing.

We'll cover the full mechanics of pullback entries (pivot points, stop placement, position sizing) later in the course, and again in M9 W4 (advanced patterns, including Episodic Pivots that often resolve through pullback structures). For today, just learn to see the pattern.

Tomorrow opens Month 4, Chart Patterns I. With the seven CAN SLIM letters complete, the course moves to the patterns that tell you exactly when to act on a stock that has passed the screen. It starts with the volatility contraction pattern on Nvidia's 2023 run, then goes deep on the cup-with-handle: its anatomy, buy point, and the depth, time and volume rules.

Reply with one thing

Pull up the chart of any stock that's been in a clear uptrend for the past 6+ months. Look at the most recent 1-3 weeks. Is the stock currently in a pullback? If so, where is it in relation to its 50-day moving average: at the line, just above it, or below it? Reply with the ticker and the position relative to the 50-day.

— Beginners in Stock Trading

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