Correction Depth

Category: finance

The total percentage decline from the market peak during a corrective phase.

Depth is the "stress test." If a correction is shallow (5%), it’s normal. If it is deep (15%+), it often triggers algorithmic "sell-stops" that lead to even more panic. We track correction depth to see if the market is hitting its "floor" of value-based buying.

Common Examples

• We modeled the market’s correction depth over the last decade to better prepare our clients for the current downturn.
• Identifying the correction depth is key to knowing when to switch from defensive cash positions to aggressive value-buying.