Definition
Correction vs Crash
A correction is a moderate market decline (typically 10-20%), while a crash is a sudden, severe fall, often signalling or accompanying a bear market.
A correction is a normal, healthy pullback of roughly 10-20% from a recent peak, often clearing out excess and resetting valuations. A crash is a steep, rapid collapse (think March 2020's COVID plunge), driven by panic, and a sustained fall over 20% marks a bear market.
Corrections happen regularly and are usually buying opportunities for long-term investors. Crashes are rarer and frightening but historically have been followed by recoveries. Distinguishing routine corrections from structural crashes helps investors stay calm and act rationally.
Related terms
- VolatilityVolatility measures how much and how quickly a price moves up and down — higher volatility means bigger, faster swings.
- DrawdownA drawdown is the peak-to-trough decline in the value of an investment or portfolio, measuring how deep a loss has run before any recovery.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.