www.CandleStickForums.com Stock Market Correction The expression, stock market correction, sounds like something was wrong and is now being fixed. Depending upon the point of view of traders and investors involved in the stock market this is sometimes the case. In general a stock market correction is a drop in stock price, usually after a rapid and/or prolonged rise. Typically a decline of as little as five percent and a much as twenty percent in the Dow Jones Industrial Average is the benchmark for a stock market correction. The decline in stock prices happens over a brief period. When stocks decline over a long period it is referred to as a bear market. Unlike bear markets stock market corrections are secondary market trends. A stock market correction is a market reversal superimposed on a steadily rising bull market. Using technical analysis tools such as Candlestick pattern formations traders are able to distinguish between a stock market correction and the start of a persistently downward, bear, market. Why does a stock market correction occur? That is the part about something being wrong and needing to be fixed. In both long term investing and in day trading it is important to keep an eye on intrinsic stock value. Stock prices may go up and give the impression that there is no end in sight. When this happens stocks become “over bought.” Latecomers to a market rally will try to buy in with the hope of obtaining profits before the trend reverses. Those who bought stock early in a market rally will start to worry when the price to earnings ratio of their stock rises too high to be supportable. One quarterly report with flat profits in key industries will commonly spook many investors who will rush to the exits, selling stock as they go. Likewise smart investors will simply take a little profit as the market heats up. In either case the selling pressure on the market drives prices down.

2. The expression, stock market
correction, sounds like something
was wrong and is now being fixed.

3. Depending upon the point of view of
traders and investors involved in the
stock market this is sometimes the
case.

4. In general a stock market correction
is a drop in stock price, usually after a
rapid and/or prolonged rise.

5. Typically a decline of as little as five
percent and a much as twenty
percent in the Dow Jones Industrial
Average is the benchmark for a stock
market correction.

6. The decline in stock prices happens
over a brief period.

7. When stocks decline over a long
period it is referred to as a bear
market.

8. Unlike bear markets stock market
corrections are secondary market
trends.

9. A stock market correction is a market
reversal superimposed on a steadily
rising bull market.

10. Using technical analysis tools such
as Candlestick pattern formations
traders are able to distinguish
between a stock market correction
and the start of a persistently
downward, bear, market.

11. Why does a stock market correction
occur?

12. That is the part about something
being wrong and needing to be fixed.

13. In both long term investing and in day
trading it is important to keep an eye
on intrinsic stock value.

14. Stock prices may go up and give the
impression that there is no end in
sight.

15. When this happens stocks become
“over bought.”

16. Latecomers to a market rally will try
to buy in with the hope of obtaining
profits before the trend reverses.

17. Those who bought stock early in a
market rally will start to worry when
the price to earnings ratio of their
stock rises too high to be
supportable.

18. One quarterly report with flat profits in
key industries will commonly spook
many investors who will rush to the
exits, selling stock as they go.

19. Likewise smart investors will simply
take a little profit as the market heats
up.

20. In either case the selling pressure on
the market drives prices down.

21. The trader or investor who uses
Japanese Candlestick analysis will
commonly see this coming and be
able to sell stock or sell short just
before a market reversal.

22. Likewise, when the stock market
correction happens the savvy trader
reading Candlestick patterns can see
when a correction has run its course

23. And will often be able to buy stock to
reverse short selling or even buy
more stock as the market heads
upwards again.

24. When the stock market moves up or
down dramatically it is critical to have
technical analysis tools such as
Candlestick charting techniques on
your side.

25. The psychology of trading and the
psychology of investing are such that
it is easy to become fearful or to
become greedy

26. When what the person needs to do is
thoughtfully analyze the stock market
signals in order to profitably buy or
sell stock, engage in buying calls or
buying puts, or simply sit tight while
the panic subsides.

27. Seeing a stock market correction for
what it is will allow the investor who
was caught by surprise to ride out the
storm and regain his or her stock
value in a short time.

28. Seeing a stock market correction
coming will allow the same investor to
buy puts on the same stock.

29. When the price corrects the investor
will execute the options contract and
get the strike price for the stock.

30. Afterwards he or she can repurchase
the same stock at the now lower price
spot price and resume a comfortable
ride in the resuming bull market.