Correction
A correction is a decline of 10-20% from a recent high in an asset or market. Corrections are normal, healthy pullbacks within larger uptrends that allow overextended prices to reset. They differ from bear markets in both depth and duration.
Understanding the Concept
• Typically lasts days to weeks, not months • Part of healthy market cycles (markets don't go straight up) • Often triggered by profit-taking or minor negative catalysts • Buy-the-dip opportunities for those with conviction
Real-World Example
The S&P 500 climbs 25% over 18 months, then drops 12% over three weeks on inflation concerns. Media headlines scream "crash" but it's a normal correction. Investors who panic sell miss the subsequent 15% rally. Those who added during the pullback outperformed significantly.
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