Most traders dread hearing the words “market correction”, but not all corrections are a bad thing; it all depends on the context from which they’re viewed. Below are several things traders should know about stock market corrections.
Corrections are Frequent
The most important thing to know is that corrections are inevitable and they happen relatively often. The United States’ economy has natural peaks and valleys, and the stock market responds to them in kind. According to information from Deutsche Bank, the stock market corrects about once a year (357 days, to be precise). Corrections are part of being a stock owner, and they can’t be prevented.
Corrections Usually Don’t Last Long
In a wider context, while corrections are inevitable, they tend to last for a shorter period than a bull market. Based on MarketWatch research, it’s been determined that the average correction lasts about 14 weeks.
Not only are corrections bound to come, no one knows when or why they’ll happen. A correction can happen within any period, and it can have any number of causes. This randomness makes it almost impossible to predict what will bring the next correction or when it will arrive.
Corrections are a Significant Issue for Day Traders
Another important factor to consider is that corrections are a lesser issue for traders who remain focused on long-term investments. It’s a much bigger problem for swing and day traders or those with heavily leveraged accounts. While day trading has its advantages, a wider view may be helpful when the next correction rolls around.
They’re a Great Time for Traders to Reassess What They Own
While corrections can be worrisome, they provide a great reminder for investors to reassess holdings. As mentioned earlier, a decline in stocks isn’t always a bad thing as it can provide an investor with an opportunity to buy a top-quality stock at a lower price. However, an occasional re-evaluation of holdings can help a stock owner build a stronger, reason-based portfolio.
As shown here, a correction can have some benefits for investors. A short-term shift in the stock market does not have to be frightening as long as the investor remembers the points cited above. Find out more at Facebook.com/rockwelltrading today.