A market correction is the negative movement of not less than 10% in a security index or market. The correction happens after a temporary increase or decrease in stock prices. Generally, market declines are caused by price declines, which can affect the rise of asset or market stock.
Market corrections happen for a shorter time than recession or bear market, but it can happen before a bear market or recession happens.
Triggers of market correction
There are many things that can lead to a market correction, including corporate earnings, technical analysis, and profit selling. Generally, market correction happens as a result of having more sellers than buyers, and everyone should know how to prepare for it.
What to do in case of a market correction
Now, that you understand what a market correction is and what causes it, what should a person with existing investments on the market do? Here are few tips:
- Do not panic – do not be greedy to the extent you sell low and then buy again when the market has stabilized. It is always advisable to plan in advance and stick to that plan during a market correction.
- Never allow temporary market conditions to affect your long-term investment plans – it can be disastrous to change your investment plans just because of transient market conditions. Therefore, you should strive to stick to your ideas, and they always lead to long-term benefits.
- Stock markets usually go up and down – just like a person breathing, the economy has its ups and downs. Therefore, every investor should understand that the markets can go up and down anytime, and get used to it.
- Have a long-term outlook – it is essential for anyone who wants to invest to develop a plan, and this plan should include a long-term prospect. The main reason why many investments fail is that many investors lack a plan, which does not allow them to think on a long-term basis. Therefore, these investors end up being in a perpetual and reactionary state.
- Be patient – fight your instincts.
- Remain diversified – do not get fearful or greedy.
- Consult your financial advisor – talking to a financial advisor can be helpful to make sure that your investments will be there even after a market correction.