A correction is a decline in the price of a cryptocurrency (or any asset) after a sustained upward move. Corrections are generally considered temporary and are a natural part of market cycles, typically defined as a pullback of 10-20% from a recent peak.
Correction vs Crash vs Bear Market
Correction (10-20% decline): A healthy reset that relieves overbought conditions.
Crash (>20% in a short period): A sudden, sharp decline often triggered by a specific event.
Bear Market (sustained >20% decline): A prolonged period of falling prices lasting weeks to years.
Why Corrections Happen
Prices can't go up indefinitely. Corrections occur when traders take profits, when an asset becomes overbought (as measured by indicators like RSI), or when external events cause a temporary shift in sentiment. In crypto, corrections of 20-40% are common even within broader bull markets.
How to Respond
Experienced investors often view corrections as buying opportunities rather than reasons to panic sell. The key is distinguishing between a temporary correction and the beginning of a prolonged downtrend.