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What is price correction and how is it different from falling prices?

If you are a new user of digital currencies, it may be difficult for you to understand the difference between a “price drop” and a “price correction”. Both of these terms are common and widely used terms in the world of digital currencies.

When the price of bitcoin falls, some say the market has fallen and others say the price has entered a correction phase. These two terms are often mistakenly used interchangeably; While their meaning is very different from each other. In this matter to help an article Compiled from the Quinn Desk website, we explain the concepts of price declines and corrections and examine their differences.

What does a fall in prices and a correction in prices mean?

Fall and price correction

As mentioned earlier, the terms fall and price correction each have different meanings; And this is something that even professional digital currency traders may not be aware of. In this part of the article, we will examine the exact meaning of these two terms.

Falling prices

According to traditional market definitions, when the price of an asset falls more than 10 percent in a day, we say that the price has “fallen.”

This fall in prices in the digital currency market is often accompanied by dramatic and sudden changes, and a combination of these factors causes many investors to leave the market in fear.

Although technical factors can have a significant impact on the price of bitcoin, the big crashes are mostly due to fundamental events such as macroeconomic events, corporate announcements, and sudden changes in international laws and policies.

The biggest bitcoin crash occurred on April 10, 2013; After the US Financial Crimes Network (FinCEN) shut down the Bitfloor digital currency exchange and announced that bitcoin exchanges should be registered as “money transferrs”. Based on data بیت‌استمپThe price of Bitcoin fell 73.1 percent in 24 hours, from $ 259.34 to $ 70.

Is price correction the same as falling prices?  Examining the meanings and differences
The biggest fall in the price of Bitcoin in April 2013

On March 12, 2020, after the announcement of a global pandemic of the Corona virus by the World Health Organization, on a day called “Black Thursday”, the price of Bitcoin fell by 40% from $ 7,969 to $ 4,776. کرد.

Bitcoin prices fall
Bitcoin prices fall on Black Thursday

Also read: Under the pretext of darker days than black; The biggest one-day crashes in Bitcoin history

Price correction

Price correction occurs when the price of an asset gradually decreases by more than 10% over several days.

This usually indicates that the cattle market traders are tired and need rest and renewed energy. This fatigue occurs when the majority of buyers have bought the asset and there are no new buyers to support the uptrend. If sales orders accumulate and there is no one to buy them, prices will gradually decrease.

Is price correction the same as falling prices?  Examining the meanings and differences
An example of the successive bitcoin price improvements in the early months of 2021

Bitcoin price correction can also occur under the influence of small events; But it starts with technical factors such as buyers entering strong resistance levels, trading volume depletion, and differences between price directions and indicators such as the Relative Strength Index (RSI) that measure momentum.

High oscillationDigital currencies

Bitcoin is known as a highly volatile asset. This means that its price fluctuates significantly in the short run compared to other assets. This is why some traditional investors, such as Warren Buffet and Carl Icahn, see it as a risky investment.

According to recent data, the one-year fluctuation of bitcoin shows 32.7%; Which is significantly different from its volatile assets such as oil (up 18.8%), the US stock exchange (up 8.41%) and the United States real estate (up 7.15%).

Although high volatility has its own advantages, especially in uptrend cycles where prices rise dramatically, it also means frequent price falls and corrections.

From January 1, 2021 (December 12, 1999) until the end of April, Bitcoin has experienced 7 significant price changes in its daily trading chart with the US dollar. Four of these movements were down (red boxes) with an average drop of 25.94% and the other three were up (58 boxes) with an average increase of 58.36% (blue boxes).

Bitcoin price fluctuations and corrections
Bitcoin price ups and downs in the first 4 months of 2021; Source: TradingView

Knowing which downtrends are “falling” and which is “correcting” will help you better understand the market and how Bitcoin traders react to specific fundamental and technical factors.

Sometimes a fall can predict a bear market and long periods of stagnation; But price reform can be seen as a sign of a healthy uptrend towards its level of support; While the price will try to break its previous peak again after this correction.

So the next time you see a bitcoin price drop, you should be able to tell if it is a correction or a fall; And whether the market is experiencing a healthy recovery period, or reacting to a news or sudden event.


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