Corrections and Crashes
A correction is a fall of about 10 percent. A crash is a sudden, steep fall over days or weeks.
Why this matters for beginners
Understanding this helps you stay calm and read price moves correctly. This is general education, not personal advice.
Main explanation
Corrections happen regularly, on average roughly once every year or two.
Crashes are rarer and often triggered by a shock, such as a pandemic or financial crisis.
During a crash, almost everything falls together, good and bad companies alike.
Selling in panic locks in the loss; investors who held broad markets have historically recovered over time.
Example using a real company
In October 1987 US shares fell more than 20 percent in a single day.
- →Index 500 to 450: a 10 percent correction.
- →Index 500 to 350 in three weeks: a crash.
Common beginner mistakes
- ✕Treating every 10 percent dip as a disaster.
- ✕Selling everything at the bottom of a crash.
Key terms
- Correction
- A fall of roughly 10 percent from a recent high.
- Crash
- A sudden, steep fall in a short time.
Key takeaways
- 01Corrections are normal.
- 02Plan your reaction before a crash happens.
Check yourself
- 01Roughly how big is a correction?
- 02What usually triggers a crash?
- 03What does panic selling do?
Try the concept on a real company
In the Analyzer, look at a company's risks and ask how it might fare in a crash.
Educational examples only. Not buy or sell recommendations.