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Market Correction Meaning

A sudden, temporary decline in the price of an asset or a whole market, usually defined as a drop of 10% to 20%. Corrections are a "healthy" part of a bull market; they "reset" the sentiment and remove the "excess leverage" from the system.

After a long period of price increases, a market becomes "Overheated." A correction acts as a "Cool-down," allowing the price to return to its "Moving Average" or a "Support Level." For long-term investors, a correction is often seen as a "Buying Opportunity"-a chance to "Buy the Dip" before the uptrend continues. If a correction continues beyond 20%, it is no longer a correction; it is officially a Bear Market.

Distinguishing between a "temporary correction" and a "fundamental trend change" is the hardest task for any trader and usually requires looking at "Macro" factors and trading volume.

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