Corrections vs. Crashes

Points:

Stock market corrections refer to temporary declines in stock prices of at least 10%.

These corrections are a normal part of market cycles and are often driven by factors like investor fear or economic changes.

Corrections don’t necessarily indicate a full-blown market crash and may even present buying opportunities for investors.

It seems like every time the market experiences a prolonged rise, there's speculation about an impending "correction."

A correction typically involves a drop of between 10% and 20% in a major market index.

Corrections vs. Crashes

The key takeaway about market corrections is this:

You won’t know it’s a correction until it’s already over.

By definition, a correction is a decline of less than 20%. During the drop, you can’t be sure if it’s just a correction or if it will escalate into a more severe market crash (usually defined as a drop of more than 20%).

Additionally, it could develop into a bear market, which is a sustained period of decline exceeding 20%.

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