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. Flight To Quality

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

    A temporary recovery from a prolonged decline or bear market, ...
  3. Bloodletting

    A period marked by severe investing losses. Bloodletting may ...
  4. Panic Selling

    Wide-scale selling of an investment, causing a sharp decline ...
  5. Retracement

    A temporary reversal in the direction of a stock's price that ...
  6. Reversal

    A change in the direction of a price trend. On a price chart, ...
Related Articles
  1. Investing Basics

    The Five Biggest Stock Market Myths

    Stocks that go down must come up, right? Wrong. We bust this myth and four other common market misconceptions.
  2. Technical Indicators

    Be Aware Of The Hindenburg

    This indicator can protect your profits from going into a tailspin.
  3. Options & Futures

    What Can Traders Learn From Investors?

    Discover tips from a long-term strategy that can help you make better short-term trades.
  4. Forex Education

    Trading Divergences In Forex

    We compare the results of two forex trades based on MACD histogram divergences.
  5. Active Trading

    Connecting Crashes, Corrections And Capitulation

    Even though crashes, corrections and capitulations are bad news for investors holding the stock, there are still ways to profit.
  6. Options & Futures

    Market-Based Asset Allocation Lowers Your Risk

    Not all investors are incredibly brave with their money. Thankfully, there are ways to measure your risk level.
  7. Active Trading

    Traders: Profit From Other Investors' Fear

    Learn to pounce on the opportunity that arises when other traders run and hide.
  8. Active Trading

    Tales From The Trenches: A Simple Bollinger Band® Strategy

    Spot extreme short-term price drops and profit on the rebound.
  9. This website offers free tools and helpful videos for those needing to keep good track of their finances
    Savings

    Mint.com: Top Free Tools To Track Your Money

    This website offers free tools and helpful videos for those needing to keep good track of their finances
  10. What visitors to these two great (but expensive) tourist meccas can expect to pay for hotel, meals and seeing the sights. Plus a few money-saving tips.
    Budgeting

    Visiting Tokyo And New York: How Costs Compare

    What visitors to these two great (but expensive) tourist meccas can expect to pay for hotel, meals and seeing the sights. Plus a few money-saving tips.

You May Also Like

Hot Definitions
  1. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  2. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
  3. Special Administrative Region - SAR

    Unique geographical areas with a high degree of autonomy set up by the People's Republic of China. The Special Administrative ...
  4. Annual Percentage Rate - APR

    The annual rate that is charged for borrowing (or made by investing), expressed as a single percentage number that represents ...
  5. Free Carrier - FCA

    A trade term requiring the seller to deliver goods to a named airport, terminal, or other place where the carrier operates. ...
  6. Law Of Supply And Demand

    A theory explaining the interaction between the supply of a resource and the demand for that resource. The law of supply ...
Trading Center