What is about a stock market correction? A market correction is essentially a sudden change in the price of an asset, after a prior barrier to market open trade has been broken and there again a new equilibrium is established price wise. It can also refer to any of the numerous single-commodity correcteduations en masse, as part of a collectively significant effect over many different markets simultaneously. The reality is that the term “market correction” can apply to a number of things, and therefore it’s important to be aware of them all before coming to a decision.
Bull Markets: In a bull market, prices go up for longer periods of time with little if any corrections (corrections, in technical terms). The logic is simple: the supply outstrips demand. After the supply exceeds demand, prices go up. But not forever. Eventually, supply and demand reach a point where corrections become ineffective and market prices drop back down to earth. Traders know this is coming and look for opportunities to take advantage.
Bear Markets: A bear market sees falling prices for at least 10 consecutive months. The logic is similar to the one used in a bull market: when supply exceeds demand, prices go down. But not forever.
Short-Term Sectors: This occurs during times when investor confidence in individual stocks wanes. For instance, if there are rumors that Apple is planning to move its corporate headquarters to Canada, some investors may be less willing to buy into the stock just yet. If those same investors were worried about Microsoft, they might be less likely to rush out and buy into Microsoft now, even though that company has seen a recent high due to the fact that it is one of the largest technology companies in the world. If you have an investment in a short-term sector, you may find yourself in a correction situation. Usually, you’ll be worried about the short-term sector’s performance during these types of market corrections, but not so much about the long-term sectors.
Long-Term Sectors: This occurs when an investor is bearish on a particular stock market sector. The logic here is that if a stock is dropping in value, some investors will be reluctant to buy into the sector. However, as the value begins to rise again, more investors are willing to buy into the stocks. This results in a stock market correction. Sometimes, a downward trend can continue; however, if it changes direction quickly, many investors will want to get out before the trend reverses. Again, this results in a stock market correction.
Short Term Sectors: These are situations where investors are bearish on a specific stock. Typically, this type of scenario will last for a short period of time – perhaps a week or two. In such cases, the stock market corrections may last longer than originally anticipated. Investors may become more bearish over time. This does not necessarily mean that they will be stuck holding the stock, since there are stock market corrections that often take place.
Bull Markets: There are times when investors become overly bullish, anticipating that a correction will take place. The logic behind this is that the correction will take place soon enough and the investors will make money. Therefore, the logic of the bear market is combined with the fear of a correction. This makes sense in a normal market, but when markets are corrected with greater strength than previously expected, this becomes a much bigger problem.
Regardless of which type of market correction takes place, it can result in investors panicking. Traders know that if they are panicking, they will likely lose even more money! Traders work very hard to prevent themselves from making bad decisions, but in a stock market correction they just might find themselves in a desperate situation. However, if you know how to recognize a stock market correction and manage your investments accordingly, there is no reason why you should panic.
