Hello, community! Whether we like it or not, the market cannot grow forever. The same goes in the opposite direction: most declines are temporary, and it’s only a matter of time before the price of Bitcoin and other coins bounces back from the bottom.
Today we’ll discuss what makes a correction different from a bear phase, and how to respond to it correctly. Before we begin, let us remind you that we already explained what Bitcoin dominance is. Highly recommended!
What is a price correction on the crypto market?
The cryptocurrency market, like any other, is highly driven by speculation. Sometimes it’s speculation, rather than objective factors such as economic growth or new crypto regulation laws, that sets the market mood.
Speculation is triggered by different factors. But the main one is the chart — the key indicator of how an asset behaves relative to the market. When a chart for a pair starts “bleeding red,” with candle after candle going down, people immediately start talking about the beginning of a bear market. However, this might just be speculation, and we’re only looking at a regular correction.
A correction in the crypto market is a stage when the value of a currency drops, sometimes sharply. The main difference between a correction and a bear market is duration: a correction is short-term, while a bear market can last for years.
Correction is a common and perfectly normal phenomenon that can also be seen during bull runs. When the market grows very rapidly, some investors take profits and sell their assets, pushing the price down. But if we’re in a typical market, not a bear phase, soon new buyers appear, eager to grab “discounted” assets — which drives prices up again.
There are several markers that help identify whether we’re seeing a correction rather than a bear trend. Most investors look at the following factors:
- Was the price drop preceded by setting a new high (at least a local maximum)?
- How long does the price decline last?
- How deep is the drop? For corrections, a decline of around 10% from the previous high is considered normal.
And while this looks clear on paper, in practice things are more complicated. There are also deep corrections, which last longer, but still aren’t bear markets.
What to do during a correction?
Any market is not a place for the faint-hearted. The worst thing you can do during corrections is to panic and start selling assets at a loss. How to avoid that?
The key is to always have your own plan. You need to know what, where, and why you’re investing in. At what price you’re ready to sell a certain asset, what your risk tolerance is, and what your target milestones are.
When a correction begins, experienced traders usually buy more assets “at a discount.” This allows them to maximize profits later when prices return to previous highs and start climbing again. To feel confident about “picking up coins cheap,” you need to:
- As mentioned, have a plan and stick to it. Today, creating an investment plan is easy, especially with AI tools at hand.
- Learn how to balance your portfolio, particularly through diversification. This not only reduces risks but also allows you to benefit from corrections. You can buy additional assets that will generate even more profit when prices stabilize.
Of course, experience is crucial here. But you can also learn from the successes — and mistakes — of fellow traders. Nothing stops you from doing that.
Conclusion
The cryptocurrency market is extremely volatile. While a 20% drop on the stock market is considered a crash and a start of a bear phase, in crypto such moves are normal. More than that — they often precede new ATHs.
It’s very difficult to predict anything in a world where a single statement from “the red-haired madman in Washington” can send even the stock market into a bloodbath of red candles. But if you have a strategy and make decisions based on calculations rather than emotions, any correction becomes a perfect opportunity to strengthen your portfolio!
To avoid ever selling at a loss during minor corrections, you must stay up to date with the latest crypto news. That’s why we recommend subscribing to our CryptoGeek channel, where we always cover the most important updates!
As always, with respect — Your Geek!