Correction
In short
Market decline of 10-20% — normal, frequent, and not a bear market
A correction is a drop of 10-20% — smaller and more common than a bear market. Corrections happen roughly once a year on average. They're painful but healthy — they prevent bubbles from inflating too far.
Market corrections (10-20% declines) occur every 1-2 years on average. They reset overvalued markets without triggering full recessions. Corrections are often healthy — flushing out speculative excess. Most investors incorrectly sell during corrections, locking in losses and missing the recovery.
Related concepts
- Bear Market — A bear market is when prices fall 20% or more from their peak and investors are pessimistic. Bear markets are typically shorter than bull markets (average 9-10 months) but feel much longer emotionally.
- Bull Market — A bull market is when prices are rising and investors are optimistic. Officially, a bull market begins when the market rises 20% from its low. Bull markets are historically much longer than bear markets.
- Maximum Drawdown — If your portfolio hit $10,000 then fell to $6,000 before recovering, the max drawdown is 40%. It measures the worst experience a real investor would have endured.
- Volatility — Volatility measures how wildly a stock's price swings. A stable utility stock might move 1% per day. A small biotech might move 10%. Higher volatility = higher risk but also higher potential reward.