PULL BACK VS. CORRECTION VS. RECESSION – WHAT’S THE DIFFERENCE?

I hear it all the time, “we are gonna have a pullback,” but the individual was really referring to a correction. Or, I’ll hear someone say “we are gonna have a recession,” but what they really were talking about was a correction. There is a difference.

Pull back

A pull back is anything in the opposite direction of the trend, that is no more than 10%. What does that mean? If stock ABC (hypothetical company) is trading for $10 per share, and they have a pull back of 2%, that means they “fell” back .20 cents (2% of $10). So now company ABC is trading at $9.80 per share after their pull back.

A pull back can happen to the downside (in an uptrend), and to the upside (in a downtrend. In an uptrend, when there is a pull back, you might hear someone say “buy the dip!” What they are saying is, buy after the pull back because the stock will be cheaper. However, NEVER take anyone’s word for that. Make sure to research the stock first, before buying in.

Correction

A correction is when a stock or index falls between 10% and 20%. So, if company ABC is trading at $10 and they lose 10% from their share price, they are said to be in “correction territory.” They started at $10 per share, and are now trading at $9 per share.

A “bear market” is anything after 20%. So if stock ABC lost $2 (20% of $10), they would be in a “bear market.” A recession, actually, has absolutely NOTHING to do with a percentage drop. That’s a myth. Although, to be fair, a lot of people collectively do consider 25% or so to be recession territory. However, by definition, a recession has nothing to do with that.

So technically, anything from 0% to a true recession, is just a correction! Think about it…

Recession

The “R” word! It strikes fear in the hearts of many.

The definition of recession is: ” a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.”

So there you have it!

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