What is Stock Market Corrections
Introductions to Corrections
Stock market selling are very normal in markets . But depending on its magnitude they are divided into market dips , corrections ,bear market and crash . If market declines 5% from its previous high it is called as dip and they are very normal in market . Second factor is corrections , if stock declines 10% from its recent highs is called as market correction . Corrections occurs 3-4 times a year but people get panicked in this situations but some Market corrections can lead to start of bear market .
Bear market is a situation when stock or index declines 20% or more from its highs . It happens after a long bull market . When shares declines 30-40% from their highs ,it is called as market crash . Market crash is very rare , it happens nearly twice in 10 years due to unpredictable factors .
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Reasons of Market Correction
Stock corrections are very necessary and important for the market. Reasons of market corrections are very uncertain , it can cause by number of events . For eg. Market crash in 2020 due to coronavirus and in march 2022 due to Ukraine-Russia war .
Market corrections occurs after a long bull market , when stock valuations are high so investors tries to book their profits . Another reason can be financial reasons such as slow economic growth , weak earnings or bad market policies . Government policies , interest rate hikes or fed policies can also lead to market corrections .
Investors get good opportunities to buy stocks .
Market becomes fairly valued.
Peoples who trades for short term can make huge profits.
Very good opportunity to short sell .
Sometime market corrections can be start of bear market.
Investors loose a lot of money.
Corrections can last for many months.
Some investors loose faith in market.
How to Trade corrections
First step in stock market is protect your profits by hedging positions .Market corrections are very good opportunity to make big profits , but only condition is follow your stoploss. If you have cash you can buy quality stocks and if you are safe investors put your money in defensive stocks.