Crash

A crash is the opposite of a bubble: a crash is a steep fall in financial markets that takes prices well below levels that can be rationally justified. Just a bubble often leads to a crash, a crash often leads to a bull run.

The difference between a crash and a correction is partly a matter of extent, but also of market sentiment and behaviour in its wake. A correction is an interruption of the general trend of the market, which resumes after the correction. A crash is not just a sharp downward movement, but a large one from which the market takes a long time to recover.

A crash is often seen as a buying opportunity by cool headed investors, but it can be hard to time the bottom of the market. Just as greater fools keep driving up bubbles, catching out those who turn bearish too early, weak sentiment can keep a market falling, even when it looks cheap.

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