Definition
The term market correction refers to the downward movement of a financial market or individual security. A market correction is classified as a secondary trend, since they are usually short in duration.
Explanation
Financial markets, such as commodities, bonds and stocks, typically demonstrate an upward or downward trend over time. Secular trends can last as long as 25 years, while primary trends will last for twelve months or more. Market corrections are secondary trends, which last from as few as a couple of weeks to several months, and may represent the reversal of a bull market.
While there is no strict definition, a commonly used description of a correction would be a decline of ten percent or more in a financial market or individual security. A correction may be a precursor to the start of a bear market, or merely represent an opportunity investors took to lock in capital gains in what might be perceived as an over-valued or over-bought market.
Related Terms
The term dead cat bounce refers to a temporary increase in a financial market, or individual security, after a sustained decline. Oftentimes, the phrase dead cat bounce refers to the temporary recovery of a security deemed to be of low quality.
Moneyzine EditorJanuary 15th, 2024
The term bull market refers to a period of time during which there is an increase in the value of equities traded on a stock market. There is no widely accepted definition of a bull market in terms of duration or magnitude of the increase.Moneyzine EditorJanuary 9th, 2024
The term bear market refers to an extended period of time during which there is a decline in the value of equities traded on a stock market. While there is no strict definition, a decline of 20% or more in a market index would be considered a confirmation of a bear market.Moneyzine EditorJanuary 8th, 2024
The term market trend is used to describe the upward or downward movement of a financial market over time. Market trends fall into one of three classifications: secular, primary, and secondary.Moneyzine EditorSeptember 20th, 2023
The term market sentiment is used to describe the prevailing attitude of investors towards a financial market or individual security. Market sentiment develops over time, and is based on a large body of information including both fundamental and technical factors.Moneyzine EditorFebruary 8th, 2024
