What Makes Stock Prices Go Up And Down?
Last Updated: Nov - 2- 2018
Stock prices go up and down because of “supply and demand”. If more people want to buy a stock (demand) than to sell it (supply), then the price moves up! Conversely, if more people wanted to sell a stock than to buy it, then there would be a greater supply than demand, and the price would fall.
Understanding supply and demand is easy. The difficult part is what makes people like a particular stock and dislike another. After a thorough research of the stock market, there are four distinct factors that affect the constant fluctuations of a stock price.
1. Internal events: These are events that occur within the company that affects the company's fundamentals, either directly or indirectly. Examples of the internal events would be the release of quarterly financials that are either positive or negative, the signing of a large new client, the imprisoning of the company's CEO, FDA approval of a new drug, or the release of an innovative new product.
2. External events: These are major political, economic, and social events that occur in the world that indirectly affect the company and industry on the whole.
3. Market pressure: The third factor is the market itself. While a stock may rise and fall on its own merits, it may also benefit just by being in a "bull market." If more people are investing in stocks in general, and the major indexes are rising, a stock that might otherwise be lackluster will enjoy something of a tailcoat effect. That's why it is always important to not only watch the movements of stocks but also of the major indexes as well.
4. Hype: There are those who promote stocks for gain, either to pump up the price of their own shares or to promote them directly for a fee from the company. Such hype may take the form of positive reports in stock market newsletters, press releases, and news reports that may cause a short-term spike in stock price.
If you understand these four points, you will know what people are buying and what people are selling. If you know this you will know why the prices go up and down!