Cycle Correction

Definition ∞ Cycle correction refers to a temporary downward price adjustment within a larger market trend, serving to rebalance asset valuations after significant gains. This movement is a natural market mechanism that reduces excessive speculation and allows prices to consolidate. It is an expected part of market behavior, facilitating price discovery and absorbing selling pressure.
Context ∞ In cryptocurrency markets, cycle corrections are common and often healthy, filtering out speculative excesses and preparing the market for future growth. Investors frequently analyze these corrections to distinguish between short-term market fluctuations and more fundamental shifts. Identifying the characteristics of a cycle correction is crucial for making informed decisions regarding risk and capital allocation.