Market corrections create fear in traders, especially those with less experience. This fear is due to uncertainty about whether the correction is temporary or the start of a prolonged downward trend. Extreme volatility, accompanied by falling prices, can lead to impulsive decisions, such as selling assets for fear of further losses. This often exacerbates the market decline and creates a domino effect among other small investors who act in a similar way.
The psychological and emotional impact is significant, as the fear of a few can turn into collective panic. This reaction is often amplified on social media and investment forums, where rumours and unfounded opinions spread quickly. For small investors, these situations often result in financial losses due to hasty sales rather than strategies based on sound analysis. This behaviour also affects liquidity and market stability in the short term.
However, for large investors or institutions, corrections represent an opportunity. These players are often ready to take advantage of falling prices and acquire undervalued assets. Unlike novice traders, large investors operate with long-term strategies and a deeper knowledge of the market. This allows them to make significant profits when the market recovers, further consolidating their dominant position in the financial ecosystem.