Correction

A correction is a term commonly used in financial markets to describe a short-term decline in the price of an asset after a prolonged period of growth or decline. A correction typically ranges from 10% to 20% of the price change from the recent high or low and occurs within a broader trend.

Key points about corrections:

Causes of a correction: A correction can occur due to various factors, such as profit-taking by investors, negative news, changes in the economy, or simply because the market has “overheated” and needs a temporary pullback for sustainable growth.

Duration: A correction is usually short-lived and is not a sign of a bear market; instead, it is considered a healthy part of the market cycle.

Role in investments: Corrections can present an opportunity for investors to buy assets at lower prices, as long as the long-term outlook remains positive.

Example: If a company’s stock price has been rising for several months and suddenly drops by 15%, this can be considered a correction. It may be triggered by technical factors or market sentiment.

A correction is a natural part of the market cycle.