Financial Markets Book Financial Markets For The Rest Of Us
An Easy Guide To Money, Bonds, Futures, Stocks, Options, And Mutual Funds
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by Robert Hashemian

Page 261

look for greener pastures, causing the stock price to drop. Beware of this effect when making trading decisions based on forecasts or expected good news.

Market Correction - One of the fundamental laws of gravity is "what goes up must come down." This also applies to some extent to the stock market. Sometimes the psychologically driven market gets too exuberant and in a short amount of time rises in leaps and bounds. As with the laws of gravity, this period of relentless rise in stock prices is inevitably followed by a downturn known as a correction period. During a market correction, which could last from one day to several months, the over-inflated stock prices return to more sustainable values. A correction is sometimes expressed in percentage points by which stocks lose their values, such as a 5% or 10% correction. After the correction period is over, stocks normally resume their normal trend.

However, if the correction continues for a long time and stock prices continue to drop below 20% or so, this may signal a bear market condition. Many investors use the correction periods to buy up those certain stocks that have fallen dramatically in price. This is sometimes referred to as bargain hunting, bottom fishing, or buying on dips. The idea is to buy those stocks that seem to have been oversold during the correction with the hope that they will quickly return to life after the correction is over. The trick of course is to figure out when the correction is over. What may seem to be a bargain today, may turn out to be an expensive buy tomorrow if the price continues to fall.

Diversification - One of the most cherished practices of conservative investors is to diversify their positions. Diversification in this context means to invest in as many varieties of investments as possible in order to guard against possible catastrophes that can grip one single stock. In layman's terms, it means not putting all your eggs

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Table of Contents
Copyright and Disclaimer
Book Chapters
Table of Contents Copyright and Disclaimer Foreword Money
Bonds Futures Stocks Options
Mutual Funds Retirement Final Words Appendix A

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