A stock market correction can get scary especially for those that tend to get emotional when markets drop. Trading/investing on emotion is never a strategy though. Most common reason traders lose money, they don't have a proper entry and/or exit plan, and emotion gets in the way.

A stock market correction is marked by a decline of around 10% or more, but less than 20%. Once we have dropped 20% it has become a bear market. By bear market we don't mean what the E-Trade commercials show, that is bears shopping at a grocery store. What a bear market means is that markets have had a significant draw down.

Market corrections are healthy and happen periodically, but sometimes we tend to wonder is this correction a time to buy, or is it the beginning of a bigger drawdown in stock market value?

Well, nobody can be certain ever of market direction, but the educated to try to guess based on what history has told us before. Given specific economic data and other factors people will go on the news outlets and major financial media and try to guess what the market will do next. I have been watching and taking notes for 20 years, even those guys don't get it right!

Since November 1974 there have been 24 market corrections, and only 5 of them turned into a bear market. Those years were: 1980, 1987, 2000, 2007, 2020. All these markets proved to be a great buying point, especially if you are a long-term investor. Having cash on the sidelines is never a bad idea for when the market turns sour.

Consider your time horizon as well. If you are a younger person who does not need the money for at least 15 years then you have plenty of time to overcome a market pullback. However, if you are an older investor and might need the money sooner, then consider risk tolerance and asset allocation. Portfolio rebalancing is needed often.

Market pullbacks are normal and apart of every trader’s life at one point or another. Bull markets do not run forever, nor do bear markets. Investing wisely and not putting in your money all at once, but instead buying in small increments and dollar cost averaging over time is a better strategy. Unless you are quite good at picking market bottoms and go in hand over fist with capital, investing wisely over time is a great option. This allows for cash to be available when better entry points into your favorite stocks come along.