By definition, any dip between 10-20% lower than a peak, is called a correction. And here we are seeing some of the most famous historical market corrections. Except for 2000, that one was a bear market but I included it here because there are some similarities between our current market condition to the ".com bubble." But let's hope for the best and say this is not going to be a bear market, and is only a correction similar to what we saw in 1998 and 2018.
There are many other market corrections in between these two dates but I picked these to show you the market mechanics has not changed much since 1998. In most of these corrections, you find the trend line being violated, retested, and rejected (red arrows). Similar to what we saw today! As you can see on the 2018 chart, the actual correction didn't come through till December after forming a triple top. So bear that in mind that when a correction begins, it's hard to pinpoint when it's going to hit the bottom and reverse. The correction in 1998 was also a complex one because the market formed a double bottom before going back up. something we didn't see in 2018.
It’s worth mentioning, this is not the only scenario moving forward. As we all know, the market is more unpredictable than we think, and it can always make small 10% corrections and go right back up and continue making ATHs. So please stay calm, and watch the market carefully and remember, the US market may have corrections or even enters bear markets, but it always moves up and makes new ATHs eventually.
So what's the best move for average retail traders in these conditions? Stay in cash! Some folks will try to buy long OTM puts and wait for the correction to reverse, and some may try to find the bottom and start buying calls, but these actions do not have a significant chance of success and are mostly pure gambles. The best course of action for an average retail trader is to stay out of the market while these corrections are happening. It's a good time to stay in cash and wait for the bottom with a solid reversal confirmation before getting back in the game.
There are many other market corrections in between these two dates but I picked these to show you the market mechanics has not changed much since 1998. In most of these corrections, you find the trend line being violated, retested, and rejected (red arrows). Similar to what we saw today! As you can see on the 2018 chart, the actual correction didn't come through till December after forming a triple top. So bear that in mind that when a correction begins, it's hard to pinpoint when it's going to hit the bottom and reverse. The correction in 1998 was also a complex one because the market formed a double bottom before going back up. something we didn't see in 2018.
It’s worth mentioning, this is not the only scenario moving forward. As we all know, the market is more unpredictable than we think, and it can always make small 10% corrections and go right back up and continue making ATHs. So please stay calm, and watch the market carefully and remember, the US market may have corrections or even enters bear markets, but it always moves up and makes new ATHs eventually.
So what's the best move for average retail traders in these conditions? Stay in cash! Some folks will try to buy long OTM puts and wait for the correction to reverse, and some may try to find the bottom and start buying calls, but these actions do not have a significant chance of success and are mostly pure gambles. The best course of action for an average retail trader is to stay out of the market while these corrections are happening. It's a good time to stay in cash and wait for the bottom with a solid reversal confirmation before getting back in the game.
