Introduction
Welcome to Part Three of the Phases of Price series.
If you haven’t watched Part One (Expansion) and Part Two (Consolidation), I recommend reviewing those first, especially the Expansion lesson as today’s topic directly builds on those concepts.
In this guide, we’ll break down:
- What a retracement is (and isn’t).
- How to identify them in real time.
- Where they tend to form.
- How to trade them using my Fractal Model and protected swing logic.
- How retracements fit into the broader Phases of Price framework.
What Is a Retracement?
A retracement is the opposite of an expansion:
- Expansion – fast, aggressive, directional move.
- Retracement – slow, shallow move against the trend.
Think of it as the market taking a “breather” before resuming the primary move.
In a bullish environment:
- Price expands upward.
- Pulls back slowly in a shallow correction.
- Resumes upward in a fresh expansion.
Key Traits of a Retracement
- Form after a strong expansion.
- Pull back into a PD array, often a fair value gap (FVG).
- Show failure swings at highs in a bullish retracement or lows in a bearish retracement.
- Respect structure without breaking the protected swing that confirms the trend.
Pro Tip: A retracement that’s too deep risks becoming a reversal. Shallow, controlled pullbacks are what you want to see. 
How to Trade Retracements
- Find a clear, strong move in one direction with momentum.
- Let price ease into a PD array (FVG, order block, etc.). Don’t rush the entry.
- This could be a Candle 2 closure in the Fractal Model or a protected swing forming at the PD array.
- Take the trade on the confirmation candle or after a retest. Place your stop near the protected swing.
- Aim for logical liquidity pools—previous highs/lows or key imbalances.
Real Chart Examples
Example 1 – Hourly Timeframe
- Expansion up, slow, shallow pullback into FVG.
- Failure swings form at retracement highs.
- Protected swing confirms.
- Price expands upward.
Example 2 – 5-Minute EURUSD
- Lower time frame retracement fails because no sweep or FVG entry occurs.
- Lesson: Not all retracements are met with expansion for a continuation.
💡 Pro Tip: Wait for a new protected swing to form inside the fair value gap. This will signal the end of the retracement phase, and start of the expansion phase.
When Retracements Don’t Happen
Strong expansions often skip retracements entirely, moving directly into consolidation or another expansion.
In these cases:
- Either wait for a valid retracement.
- Use a lower timeframe to get a better picture
Combining with the Phases of Price
Retracements are just one part of the flow:
Expansion → Retracement → Expansion
By recognizing the phase you’re in, you can anticipate:
- Where the next opportunity is likely to form.
- How deep price can reasonably pull back before invalidating the trend.
Key Takeaways
- Retracements = slow, shallow moves against the trend.
- Look for them in fair value gaps, ideally with failure swings.
- Confirm with a protected swing or C2 closure.
- Not every expansion will give you a retracement and that’s okay.
- Blend with other phases for a complete trading roadmap.
