A correction normally refers to a drop of at least 10% in the price of a stock (or stock market) from a recent high. 

A recent movement in the market has sparked some huge responses in the past 2 days and it would be interesting to note that speculators tend to flee the market while long term investors start to take this as an opportunity. Here’s an explanation of the difference between a correction and a bear market.

A correction is different from a bear market as the bear market is defined as a fall of 20% or more from a stock market’s most recent high.

Corrections and bear markets may sound terrifying, but we shouldn’t fear them as they are common features of a healthy stock market. They are usually short-lived too.

According to Fidelity, since 1920, the US’ S&P 500 index has experienced on average a pullback (defined as a brief 5% reversal in the price of an asset) 3 times a year, a correction once a year, and a bear market every 3 years.

For those investors with a long-term view of the stock market, corrections and bear markets provide great opportunities to buy stocks in wonderful companies at lowered valuations.