A correction is nothing but an adjustment of the prices so that they reach their “support” levels. There are various reasons why prices may go down even though the fundamentals of the scrip may be intact. News of adverse events, perceived threats to the prospects of the stock, profit-taking by large institutions and even a fire-sale like that of Bear Sterns can lead to corrections. You must remember that these are a normal part of the market cycle and only those that learn how to tame these cycles can emerge winners.
Things you should keep in mind during a correction
Understand why corrections take place:
One of the reasons for the paranoia is the fear of the unknown – one doesn’t know what caused the correction and one fears that it will last forever. Everything has a reason and a rationale. It is important to come to grips with the situation and to realize that every correction has a limited time-phase. If you are a long-term investor, you will realize that after every correction, there is always an uptrend. And if you have bought quality scrips, they are the first to rebound after every correction.
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