Basics of Market Correction

Market correction or market pullback, are some of the most common terms one comes across when dealing with capital markets. When a bullish uptrend suddenly stalls and the price starts coming down it is termed as a correction. Similarly when a bearish downtrend suddenly stalls and the price starts moving upwards it is termed as a pullback.

Many experts have tried to understand and analyse this phenomenon in great detail. Charles Dow classified this correction or pullback into degrees viz. minor, intermediate and primary. According to Dow, if a correction lasts for less than three weeks it may be termed as a minor correction. If it lasts for a few months it becomes an intermediate correction and if it lasts for more than nine months it must be looked at as a major correction of the market. Ralph Elliot on the other hand has divided the entire market correction process into various degrees sorted by timeframe categories ranging from intraday to many decades. According to him, a correction may be subminuette and last intraday or could be minuette and last a few days or be minute and last a few weeks. Similarly a correction that lasts for years would be a cycle, a decade would be termed as a super cycle and if it lasts for many decades it would be termed as a super cycle.

As has been elucidated from the above, a market could be in a continuous correction mode without an investor even noticing it or the correction could be sharp and cause utter chaos.

Understanding the degrees and levels of this correction or pullback thus becomes extremely critical in analysing the market as it can give one a deep insight into the levels of the probable turning points of the markets.

Copyright : Pathfinders Trainings / 9022330009




Leave a Reply