Market Correction
A phase where prices fall about 10% from the peak in the short term — shallower than a bear market (20%↓), commonly seen as a breather amid a rise.
In plain terms
A correction is a rising price (or market) briefly falling about 10%. It is likened to catching your breath while climbing stairs. It is a shallower drop than a bear market (over 20%).
The market does not go one way only. Corrections coming in between even during a rise are actually normal. They are often seen as just a "breather zone."
What it tells you
A correction sometimes serves to cool an overheated mood. A price that rose too fast falls briefly, easing the valuation burden.
But whether a correction deepens into a bear market or turns back into a rise is hard to know in advance. So whether it is a correction or a trend reversal reveals itself only with time.
Formula
correction = a drop of about 10% to under 20% from the peak (20% or more is classed as a bear market)
What high or low means
A shallow correction reads as a breather within an uptrend; deepening, as the start of a bear market. The same drop is divided in meaning by its depth and duration.
In a correction even good companies' stocks get cheap too, so it can be an occasion for long-term investors to examine stocks of interest (this is description, not a buy suggestion).
There is no guarantee that "it fell 10%, so a rebound is near." A drop that looked like a correction often deepens into a bear market, so calling the bottom by the number alone is risky.
A correction may be marketwide, or only a specific sector or stock. Distinguish whether your stock's drop is the market's fault or that company's own problem.
A correction is an expression about index flows. This term is background for understanding market news.
Metrics to read alongside
See it in real stocks
Search US stocks on Stocklore to see Market and other financial metrics alongside the sector average.
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.