If you are a beginner in stock marketing, you should know few facts before investing. Such one is market correction, it is quite common in trading. A market correction refers to a sudden drop in price, often more than 10% from the recent peak. Anyway, in this article we are going to discuss what is market correction, its causes and how to recognize it.
This guide will help you gain knowledge about market correction and how to ride it with confidence. Then you can confidently invest in long-term investments and make profit without worries. And if you are interested here you can learn Top mutual funds in India. Let’s have a look.
What is Market Correction?
A market correction refers to a significant decline in stock prices, especially a 10% or more decline in the price of a security (current market values, individual stocks) from a recent high. This market correction can happen due to certain reasons like economic downturns, unexpected events and political uncertainty. However, according to experts, this market correction will not last more than 3 or 4 months, which is crucial for investors looking for this period of investment.
What are the causes of Market Correction
There are several factors that can cause Market Correction, such as we have discussed earlier economic downturns, unexpected events and political uncertainty. Anyway here we explain it in detail;
Economic slowdown- A weakening economy can cause market correction.
Inflation- High inflation can cause a negative impact on corporate profit.
Political Uncertainty- Trade disputes, political instability and global conflict can adversely cause market conditions in trading.
Bank Interest Rate- The federal reserve and other central bank interest rates hike may affect trading and can cause Market correction.
Overvaluation– Stock prices rise rapidly and become overvalued, this also causes Market Correction.
How to Identify Market Correction?
Usually market corrections are difficult to identify and experts try to predict them with the help of various charting methods. A market correction can be very difficult to identify for a number of reasons, such as large-scale economic changes to financial problems. A relatively easy way to identify a stock market correction is to observe a decline of 10% or more in a major stock market index.
How to Overcome Market Correction?
A market correction is very common in the share market, but you can make the possibility of buying stocks at a discount price. At the same time, market correction is a scary thing that can cause you to leave your money, so be careful.
Don’t panic and take the decision broadly as this is a normal part of stock investing. Take some time before making changes and remember that market corrections only last for a short time.
Difference Between Market Correction and Bear Market
A market correction is a decline in a stock market index of 10% or more whereas a bear market is a decline in a stock market index of 20% or more from its recent high. Moreover, market correction can last for a week and a bear market can last for months or years.
These are the details of Market Correction and here we explain how it occurs and overcome it. However, be safe in your long or short term investment and make wise decisions to save your money.