How to Manage a Market Correction: Points You Won't Read Elsewhere

When trying to figure out how best to manage a market correction, one of the first things you need to consider is how each of your holdings has performed prior to or in the early stages of the correction period. In order to arrive at this assessment, we examine relative strength. Relative strength measures the performance of a security versus an appropriate index over a given time frame. While relative strength is often very useful for trading purposes, its utility diminishes during a stock market collapse. Often during a collapse, most securities that have outperformance eventually lose their performance edge. But this is not so obvious in the early stages of a large market correction.