PostHeaderIcon Understanding Pullbacks, Corrections and Bear Markets

shutterstock_9186970When you engage in trading and investing, there might be certain terms that you need to know about. These terms may be vital in helping you understand how the market is moving and determine what your next moves will be. Among the different terms you will hear now and then, there are certain ones during a down market that you need to know and understand. You should know about such terms like pullbacks, bear markets, and corrections.

What are pullbacks?

Usually, you will hear about a pullback when a stock takes a dip in price. Essentially, this term refers to a minor dip of around 5 percent from a recent high. It is usually temporary, with the stock price moving back to its upward momentum. A pullback is usually an opportunity to buy stocks in an ongoing bull market, as it is a temporary downturn on a stock with a generally upward momentum.

What is a correction?

A correction is a temporary downturn that move 10 percent lower from previous new highs. It sometimes can just be a healthy dip before prices start back up again. One reason is that it may be a result of investors taking in profits. But it can also be a concern since its recovery may depend whether the companies are still in good fiscal shape. It may also be an indicator of weakness in the overall economy. Some may consider a correction as a shorter-term pullback in a bull market. It may just be a bit more concerning since it is a 10 percent dip.

What is a bear market?

A bear market is a more serious tumble in the stock market. It is characterized by a downturn of around 20 percent of average prices from their previous highs. It usually lasts for a couple of months or even more. It usually leads to a growing pessimistic attitude among investors that usually prolongs the trend further. It can be difficult to predict when it will stop.


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