Correction

AAA

DEFINITION of 'Correction'

A reverse movement, usually negative, of at least 10% in a stock, bond, commodity or index to adjust for an overvaluation. Corrections are generally temporary price declines interrupting an uptrend in the market or an asset. A correction has a shorter duration than a bear market or a recession, but it can be a precursor to either.

One way analysts attempt to predict whether a market is headed for a correction is to compare one market index to a similar index. For example, if the U.K.'s FTSE 100 has recently underperformed, the S&P 500 in the U.S. might follow suit.

INVESTOPEDIA EXPLAINS 'Correction'

When the market is showing a trend of closing lower, a correction may be at hand. A correction in the market as a whole does not necessarily tell us how any one stock is performing, however. A stock may remain strong despite a correction - for example, consumer staples tend to perform steadily in any market. A stock could also perform about the same as the overall market during a correction, or it could plummet even further than the overall market. A correction can be a opportunity for value investors to pick up good companies at bargain prices.

RELATED TERMS
  1. Technical Correction

    A decrease in the market price of an asset or entire market after ...
  2. Capitulation

    When investors give up any previous gains in stock price by selling ...
  3. Falling Knife

    A slang phrase for a security or industry in which the current ...
  4. Bear Market

    A market condition in which the prices of securities are falling, ...
  5. Flight To Quality

    The action of investors moving their capital away from riskier ...
  6. Dead Cat Bounce

    A temporary recovery from a prolonged decline or bear market, ...
Related Articles
  1. The Five Biggest Stock Market Myths
    Investing Basics

    The Five Biggest Stock Market Myths

  2. Be Aware Of The Hindenburg
    Technical Indicators

    Be Aware Of The Hindenburg

  3. What Can Traders Learn From Investors?
    Options & Futures

    What Can Traders Learn From Investors?

  4. Trading Divergences In Forex
    Forex Education

    Trading Divergences In Forex

comments powered by Disqus
Hot Definitions
  1. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  2. Odious Debt

    Money borrowed by one country from another country and then misappropriated by national rulers. A nation's debt becomes odious ...
  3. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the ...
  4. Harvest Strategy

    A strategy in which investment in a particular line of business is reduced or eliminated because the revenue brought in by ...
  5. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  6. Pareto Principle

    A principle, named after economist Vilfredo Pareto, that specifies an unequal relationship between inputs and outputs. The ...
Trading Center