Correction
A phase where the share price falls about 10% from its peak over a short period — shallower than a bear market (20%↓), and commonly seen as a pause during an uptrend.
Correction = a decline of about 10% or more but less than 20% from the peak
A shallow correction is read as a breather within an uptrend, while a deeper one is sometimes read as the start of a bear market.
In plain terms
A correction refers to a rising share price (or market) dipping about 10% for a while. It is often compared to catching your breath while climbing stairs. It is a shallower decline than a bear market (a drop of more than 20%).
Markets do not move in only one direction. Corrections appearing here and there even during a rise is actually normal. They are often viewed as a "breather" stretch.
What it tells you
A correction can serve to cool down an overheated mood. A share price that rose too quickly dips for a while, easing the valuation burden.
That said, whether a correction will deepen into a bear market or turn back upward is hard to know in advance. So whether it is a correction or a trend change only becomes clear with time.
Formula
Correction = a decline of about 10% or more but less than 20% from the peak (20% or more is classified as a bear market)
What high or low means
A shallow correction is read as a breather within an uptrend, while a deeper one is sometimes read as the start of a bear market. Even for the same decline, its depth and duration change the meaning.
In a correction phase, shares of good companies fall along with everything else, so for long-horizon investors it can become an occasion to look over the stocks they are following (this is a description only, not a suggestion to buy).
There's no guarantee that "it fell 10%, so a rebound is coming." A decline that looked like a correction often deepens into a bear market, so calling the bottom from numbers alone is risky.
A correction can involve the whole market, or only a particular sector or stock. Even for the same size of decline, the whole market falling and a problem specific to that one company mean different things.
A correction is a way of describing the movement of market indexes. This term is background knowledge for understanding market news.
Metrics to read alongside
See it in real stocks
Search US stocks on Stocklore to see SEC-filing-based financial metrics alongside the sector benchmark.
This explanation is for information and reference only and is not a recommendation to buy or sell any security. Investment decisions and their consequences are your own.