Correction

The true definition of a correction is a pullback of an asset’s price of at least 10% to adjust for over-valuation.

What is a Correction?

We cannot define a correction precisely, but generally speaking, correction is used to describe a rapid drop in the price of an asset of at least 10% from a recently reached peak. It is called a correction because the price returns to its long-term established trend after an abnormal increase.

Corrections are usually followed by improvements, but there may also be periods of decline, such as a “bear market”, where prices may fall by 20% or more.

Learn more about the bear market.

Due to the characteristic volatility of cryptocurrencies in the world of cryptocurrencies, 5-10% corrections are observed more frequently than in traditional markets. However, the market tends to stabilize with similarly frequent recoveries.

How do Crypto Traders respond to Price Corrections?

Adjustments can often occur as major consequences of small events such as low trading volumes or other technical factors. Therefore, correction can take several days, weeks, and in some cases months, and occurs on a regular basis.

As we mentioned above, the cryptocurrency market is known for its volatility. Looking at 2021 alone, for example, the cryptocurrency market has experienced four market corrections.

In such cases, analysts can tell investors it’s a great opportunity to buy assets for sale. But the main concern here is that it can be difficult to determine when a fix might occur. Cryptocurrency corrections can be unpredictable. Therefore, crypto trading bots can help traders determine when to trade.