Do You Know Why Stock Prices Go Up And Down?
Stocks grow because more people want to buy than sell. In this case, they are offering a higher price than the currently traded shares. On the other side of the coin, stocks fell because more people were selling than buying. To sell their shares quickly, they are willing to accept a lower price.
Stock prices change every day as a result of market forces. By this, we mean that share prices change because of supply and demand. If more people want to buy a stock (demand) than sell it (supply), then the price moves up. Conversely, if more people wanted to sell a stock than buy it, there would be greater supply than demand, and the price would fall.
However, we will look at the various reasons a trader may want to buy or sell a stock.
It is possible to review the company’s financial statements and determine company costs. It said investors who took this approach were exploring the “basics” of the company. You are trying to find an undervalued stock that is trading below its “book value.” They believe that sooner or later other traders will realize that the company is paying more than the current price and will start bidding.
Other investment psychologists call this the “technical approach.” This is when traders carefully look at charts of past stock performance and look for trends they believe will repeat themselves shortly. This trader also looks at developments across the market and tries to predict their effect on individual stocks.
Sometimes companies trade at half the “book value”, in other cases at the double, triple, or even more value. In this case, there may be a sudden and sharp change in price. This instability makes it possible to generate huge profits in the market. He was also responsible for heavy losses.
The stock market is a large auction that sells the properties of big companies. If some investors believe a particular company is a good investment, they are ready to raise the price. If many investors want to sell shares at the same time, supply will exceed the demand and prices will fall.
Watching the stock market can be like bouncing a ball. It goes up and down and then goes up again. This can be very frustrating for many investors who wish to continue growing. It is this instability in the market as a whole and in individual stocks which the skilled traders win. In the absence of many experiences, individual investors need proven sources of information and orientation.
Many investors (as opposed to traders) have a buy and hold philosophy. This will work well in an ever-growing market. Unfortunately, the stock market is not moving in a straight line. Some ups and downs frustrate this type of investor. Today many investors have become “traders” buying and selling in market fluctuations and individual stocks. These traders make money in any market – up or down!
Another well-known investment site www.fool.com lists the following reasons for stocks going up and down:
Why Stocks Go Up
- Growing sales and profits
- A great new president hired to run the company
- An exciting new product or service is introduced
- More exciting new products or services are expected
- The company lands a big new contract
- A great review of a new product in the press or on TV
- the company is going to split its stock
- Scientists discover the product is good for something else
- Some famous investor is buying shares
- Lots of people are buying shares
- An analyst upgrades the company, changing her recommendation from, for instance, “buy” to “strong-buy”
- Other stocks in the same industry go up
- A competitor’s factory burns down
- The company wins a lawsuit
- More people are buying the product or service
- The company expands globally and starts selling in other countries
- The industry is “hot” — people expect big things for good reasons
- The industry is “hot” — people don’t understand much about it, but they’re buying anyway
- The company is bought by another company
- The company might be bought by another company
- The company is going to spin-off part of itself as a new company
- For no reason at all
Why Stocks Go Down
- Profits slipping, sales slipping
- Top executives leave the company
- A famous investor sells shares of the company
- An analyst downgrades his recommendation of the stock, maybe from “buy” to “hold”
- The company loses a major customer
- Lots of people are selling shares
- A factory burns down
- Other stocks in the same industry go down
- Another company introduces a better product
- There’s a supply shortage, so not enough of the product can be made
- A big lawsuit is filed against the company
- Scientists discover the product is not safe
- Fewer people are buying the product
- The industry used to be “hot,” but now another industry is more popular
- Some new law might hurt sales or profits
- A powerful company enters the business
- No reason at all