Understanding the Ups and Downs of Stock Prices

A lot of factors affect the rise and fall of stock market. The most basic determinant of stock price movement is the law of supply and demand.

As in most goods, the price of a stock rises when more investors are in demand of it. Naturally the stock price falls when its investors are abandoning or trading in their shares.

This probably sounds simplistic right now because we’re looking at it in a vacuum. In realist, the supply of and demand for stock shares are connected to actual internal and external events that involve a company.

Market Psychology

Believe it or not, the strength of stock prices actually depends on the reputation of a company. When the general market psychology is favorable for the company, more investors believe in its growth. Hence, they buy shares and increase the stock price.

On the other hand, when they fail to see any promise in the company, they abandon their stocks, increasing the supply of abandoned company shares. The lack of demand, in this case, lets the stock price drop significantly.

Investor needs

Investor needs are probably the hardest to predict in the stock market. Shareholders buy and sell stocks for a number of reasons, and sometimes they don’t even have anything to do with how the company is performing.

For example, a number of investors may sell their shares at the same time because of personal emergencies or disinterest in the trade itself. This can’t be studied thoroughly because the reason behind the share sale is isolated.

Important

Stock prices are not necessarily indicative of its value. Your best bet, as a beginner investor, it to watch the fluctuations of the top company shares in the market. You can own a small portion of it at first just to experiment.

You can vouch for stock shares that rise and fall within the day. As long as each share retains its $1 value, it’s still officially listed in the market.

Your best move would be to buy a share while its price is down, and sell it once you feel that it has reached it possibility. Most investors acquire losses because they panic and do the opposite: buying when the stocks are up and selling when the prices go down.