UK Accounting Glossary
A market correction is a decline in price following an extended rise in price. Unlike a market crash, a correction involves a relatively small percentage decline that occurs gradually rather than precipitously. After a correction, markets often consolidate in a narrow trading range before moving upwards. In bull markets, corrections are viewed as a healthy repricing of stocks. Investors often use corrections as an opportunity to enter at more favourable prices. Many market timers use indicators and technical analysis to try and determine when a correction is likely to begin and end. The practice of going long during corrections is sometimes referred to as “Buying the Dip”. Since crashes usually start out looking like corrections, going long during a correction carries risk.
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This glossary post was last updated: 4th February 2020.