What is Correction?

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A correction (or market correction) is a generic term used to refer to a quick dip in the price of an asset (by at least 10%) from its most recent price peak point. Corrections are short-lived as they are simply a temporary pullback to correct the overarching price movement of a tradable asset. 

A correction can only be seen on the price chart of an asset (stocks, cryptocurrencies, indexes etc.) and may also last a lengthy period of time, therefore becoming a bear market with usually more than a 20% drop in the asset’s value.

Compared to traditional markets, cryptocurrency markets experience corrections more frequently due to the volatile nature of crypto assets.

Is a correction good for the market?

Market corrections pose an opportunity for investors to purchase high-value stocks at lower prices, as there is often a return to previous price levels and sometimes even above the previous trading price. An investor can not be entirely sure of the behaviour of a pullback in the trading price of an asset until the move is complete; hence, it is recommended to leverage trading tools such as stop-loss orders. 

Long term investors (hodlers) are usually not so bothered about correctional price movements in the crypto market as prices tend to recover in the ideal time. A current study of major cryptocurrencies since the inception of Bitcoin in 2010 shows them to be generally bullish.

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