Correction
A decline of roughly 10% or more from a recent peak, short of the 20% that defines a bear market.
Formula
Test: the index has fallen between 10% and 20% from its prior high
Unit
%
In depth
Corrections are ordinary rather than exceptional: equity markets experience one on average about once a year, which makes them a feature of holding equities rather than a signal about them. The word implies the market is correcting an error, which is an interpretation rather than a description — a fall of 12% may equally be the start of a larger decline or the end of one. It is impossible to tell in real time whether a correction will become a bear market, and this dictionary offers no view on either. What a correction reliably does is test whether an investor's stated risk tolerance matches their actual one.
Worked example
An index falling from 24,000 to 21,360 is down exactly 11%, a correction. It becomes a bear market only below 19,200, and nothing in the first decline indicates whether the second will follow.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Correction” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.