DEFINITION of 'Reaction'

A reversal in the movement of a security's price. Reaction is most often associated with a downward movement in the price of a security after a period of upward movement, as investors sell off shares or decrease the volume of buy orders for fear of the security being overvalued. Reactions are likely to be mild and lead to a slight increase or decrease in price, rather than a large change in value. A reaction is similar to a correction but lacks the same intensity.


Reactions are generally considered to be positive for the overall health of the market, since unending price increases can cause inflation or result in an even larger price drop if a company doesn't meet expectations. A reaction is likely to prevent events such as runs or high volume sell offs at later dates.

  1. Security

    A financial instrument that represents an ownership position ...
  2. Bulge

    A fast increase in a security's or commodity's trading price. ...
  3. Break

    A term used in futures markets to describe a rapid and sharp ...
  4. Reversal

    A change in the direction of a price trend. On a price chart, ...
  5. Correction

    A reverse movement, usually negative, of at least 10% in a stock, ...
  6. Futures Contract

    A contractual agreement, generally made on the trading floor ...
Related Articles
  1. Active Trading

    Is A Reversal On The Way? Consult Traders' Index

    Use this indicator to gauge the end of a price trend.
  2. Fundamental Analysis

    4 Key Indicators That Move The Markets

    Find out what reports to watch in order to anticipate and react to market movements.
  3. Trading Strategies

    When Is A Bull Market Not A Bull Market?

    During some bull or bear moves in the stock markets, investors will be going with the trend, but day traders may find they cannot.
  4. Active Trading Fundamentals

    Forces That Move Stock Prices

    You can't predict exactly how stocks will behave, but knowing what affects prices will put you ahead of the pack.
  5. Active Trading

    Market Cycles: The Key To Maximum Returns

    You need to understand the various phases of the market cycle to avoid bubbles and make the best investments.
  6. Options & Futures

    The Stock Cycle: What Goes Up Must Come Down

    Stock prices seem random, but there are repeating cycles. Learn to take advantage.
  7. Chart Advisor

    ChartAdvisor for October 2 2015

    Weekly technical summary of the major U.S. indexes.
  8. Investing

    How Diversifying Can Help You Manage Market Mayhem

    The recent market volatility, while not unexpected, has certainly been hard for any investor to digest.
  9. Technical Indicators

    Why MACD Divergence Is an Unreliable Signal

    MACD divergence is a popular method for predicting reversals, but unfortunately it isn't very accurate. Learn the weaknesses of indicator divergence.
  10. Investing Basics

    5 Common Mistakes New Investors Make

    When it’s time to start investing, watch out for these five common beginner’s mistakes.
  1. What are some of the most common technical indicators that back up Doji patterns?

    The doji candlestick is important enough that Steve Nison devotes an entire chapter to it in his definitive work on candlestick ... Read Full Answer >>
  2. Tame Panic Selling with the Exhausted Selling Model

    The exhausted selling model is a pricing strategy used to identify and trade based off of the price floor of a security. ... Read Full Answer >>
  3. Point and Figure Charting Using Count Analysis

    Count analysis is a means of interpreting point and figure charts to measure vertical price movements. Technical analysts ... Read Full Answer >>
  4. What is a stock split? Why do stocks split?

    All publicly-traded companies have a set number of shares that are outstanding on the stock market. A stock split is a decision ... Read Full Answer >>
  5. What assumptions are made when conducting a t-test?

    The common assumptions made when doing a t-test include those regarding the scale of measurement, random sampling, normality ... Read Full Answer >>
  6. How do I place an order to buy or sell shares?

    It is easy to get started buying and selling stocks, especially with the advancements in online trading since the turn of ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  2. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  3. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  4. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
  5. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
  6. Cost Of Funds

    The interest rate paid by financial institutions for the funds that they deploy in their business. The cost of funds is one ...
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!