What is Correction?
Korreksiya
In short
A 10–20% decline from a recent peak. Common even within long uptrends.
A correction is a 10–20% decline from a recent peak. It's milder than a bear market (20% or more) and common even in long uptrends. The term applies both to indexes and to individual stocks.
Formula
- Decline % = (peak − current price) ÷ peak × 100%
- Rise needed to regain the peak = (peak − current price) ÷ current price × 100%
The second formula matters: recovering a 15% decline takes not 15% but about 17.6%.
Why they happen
Corrections come from profit-taking after a long run, macroeconomic worries, shifting rate expectations, or simply the price "catching its breath" after rising too fast. They are often a healthy part of a trend, with price retesting support levels.
How to approach them
When a correction starts, you can't know in advance where it stops — at 10% or whether it becomes a bear market. So both panic selling and throwing in all your cash because "it's cheaper now" can be mistakes. For traders the key question is whether your own drawdown stays within your plan's limit.
Example
Illustrative: a stock falls from a $150 peak to $127.50.
- Decline: ($150 − $127.50) ÷ $150 = $22.50 ÷ $150 = 15% → a correction.
- To get back to $150: $22.50 ÷ $127.50 ≈ 17.6% rise needed.
- If the price drops to $120: $30 ÷ $150 = 20% → now at the bear-market threshold.
Calculate recovery for different declines in the drawdown calculator.
Mistakes and tips
Don't automatically treat a correction as a 'buying opportunity' — check the cause and whether the trend has broken.
Splitting entries into stages (e.g. DCA) is more robust than trying to pick the bottom.
Don't move stops during a correction to 'hang on' — stick to the logic you had when you wrote the plan.
Frequently asked questions
- What is the difference between a correction and a crash?
- A correction is a 10–20% decline, usually over weeks or months. A crash is a sharp, large drop in a very short time, often a few days.
- How long does a market correction last?
- It varies — from a few weeks to several months. Nobody knows the exact length in advance.
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