Stock market crashes occur when there is an unanticipated drop in stock prices; therefore, there is no way to determine how often crashes happen, explains Investopedia. Two of the biggest crashes in the 20th century occurred in 1929 and in 1987, commonly referred to as Black Monday.Continue Reading
Stock market corrections happen more frequently than crashes, and corrections occur when the value of stocks reverse by 10 percent or more, according to Investopedia. Corrections often signal the onset of an economic downturn or recession but do not guarantee a stock market crash. Many investors follow the Dow Jones Industrial Average, the Nasdaq and the S&P 500 to try and gauge when and if corrections occur.
Stock market corrections often occur when investors believe that stock, bond or commodity prices are too high, and selling begins to adjust for overvaluation, states Investopedia. Many value investors consider stock market corrections a buying opportunity and often add to their positions once prices decline by 10 percent or more. Value investors believe that corrections provide them an opportunity to buy good companies at cheap prices. However, there is no definitive method to determine when any stock market crash or correction occurs, and investors can only speculate by following certain market trends, such as the Dow Jones closing lower for five consecutive days.Learn more about Investing