what is retracement in forex?

A retracement is a temporary reversal in a dominant upward or downward trend.

From the screenshot I attached, the price is in an upward trend but the yellow circle shows the moment a retracement happens after which the upward trend continues strong.

Some traders erroneously exit their trades when they see a retracement because they think the trend is ending, only for the trend to continue.

Some traders also trade the retracement, so they look out for it and trade in the direction of the retracement.

The best way I identify retracements is watching out for when price approaches major resistance/support levels or using the Fibonacci retracement tool.

A retracement in my view, happens when people are cashing out on a moving trend. if the trend is upward, people cash out with their profits by selling and this causes bearish candles to form. However a retracement does not mean the trend is over, its just some traders exiting the market with profits.

Whenever there is an upward or downward trend and people start taking profit & exiting the market, you will see a temporary trend reversal which is called a retracement. It is temporary and does not nullify the trend because after these traders exit with their profits, the trend will continue. Lots of beginner traders confuse retracements for actual trend reversals and exit their positions only for the trend to resume afterwards.