Correction

A correction refers to a price pullback that follows a period of sustained gains (or, less commonly, losses) as traders lock in profits and momentum temporarily reverses. Most analysts define a correction as a decline of roughly 10% to 20% from a recent high, though because crypto markets are far more volatile than traditional stock markets, corrections in Bitcoin and altcoins can run as deep as 30% without necessarily signalling a longer-term trend change.

Corrections happen because no asset rises or falls in a straight line. As a coin's price climbs, early holders and short-term traders sell portions of their position to realize gains, which cools demand and pulls the price back toward a more sustainable level. The same dynamic works in reverse after a sharp decline, when short-sellers close their positions by buying back the asset, causing a rebound. In leveraged crypto markets, a correction can accelerate quickly: falling prices trigger stop-loss orders and forced liquidations of leveraged positions, adding extra selling pressure within minutes.

A well-known example occurred in 2021, when Bitcoin hit an all-time high near $64,000 in April before correcting to roughly $30,000 within a month, a drop of more than 50% that many traders still classified as a correction within an ongoing bull cycle rather than the start of a bear market.

Corrections are generally considered a normal, healthy part of market cycles rather than a warning sign, distinguishing them from a smaller dip or a prolonged bear market, which reflects a sustained downtrend over months rather than a short-term reset.