Peter Lynch on anticipating corrections

Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.

- Peter Lynch 

Taker risks, just make sure that the risk are prudent. The correction is the exception not the norm. Realize that markets will correct, but the most likely scenario is that they will maintain the status quo. If a market is trending up, it will likely continue to move in that direction. It will change, but trends will last longer than expected. A focus on the current market environment is better than a forecast on the reversal that is less likely to occur. Peter Lynch was not a trend-follower but it is unlikely he wold fight the market direction under the assumption there will be a change.

One of the key advantages of trend-followers is their willingness to stay in the current market environment and not in the environment of "what if". This could be one of the key distinctions between systematic and discretionary traders.

Nevertheless, every trend-follower has an exit strategy and realizes there is a time to walk away. The exit is usually based on the a reversal of price not based on a fundamental forecasts but on market behavior. There is a willingness to give up some existing profits to stay in a trend until there is an actual sign of a reversal.

There is a higher likelihood of an equity market correction. The case can be made through looking at valuation, length of cycle, and some fundamentals, but if price behavior is telling us otherwise, the disciplined money will stay with the current trend.