A throwback can occur after a price breaks through its resistance line on a technical chart. A throwback is the opposite of a retraction after a price breaks through its support line on a technical chart. A throwback pattern will show a price moving higher through its resistance but then retracting towards the resistance line.
Throwbacks can be important technical patterns for technical traders. Generally, traders will typically use an envelope channel chart in their technical analysis of security prices. Envelope channels create fluid resistance and support trendlines around the price of a security. Resistance and support trendlines can be one of the most common areas where a security will experience a reversal. However, not all securities will reverse at these trendlines which makes them important areas to watch for price movement.
Traders may use a variety of different envelope channels to create resistance and support trendlines. Bollinger Bands are one of the most common channels, charting a resistance trendline two standard deviations above the moving average. When a security’s price reaches its resistance level it can either reverse or move through the trendline which over time will push the resistance line higher.
If a security’s price breaks through its resistance trendline it is common for the price to retract back toward the trendline at some point. When the price shows significant retraction and movement sideways, a throwback occurs. A throwback may be a correction followed by a return back below the resistance trendline. However, in many cases a throwback will be followed by further movements higher.
The move back toward the level of a breakout may be alarming and it causes many to panic and close their position because they think the pattern is not valid. This retest of the breakout level isn't all that bad and is quite common. The successful bounce off the resistance can actually help strengthen the pattern and its suggested new direction.
A pullback is often characterized as the opposite of a throwback. This chart pattern is based on the same concepts as a throwback however it occurs at the support line. In a pullback pattern a price will break through its envelope channel support line and then retract back toward the support line.
A pullback may be followed by movement back above the support line. However, similar to price action following a throwback, the pattern is likely to continue breaking further away from the support level. Generally, both a pullback and throwback show new supply and demand being established in the market that creates further momentum towards the breakout direction.