Everyday, all kinds of people publicly tell us why a stock would go up or down in the near future. Sometimes they talk about earnings, other times they talk about the economy but at the end of the day, stocks go up and down based on basic supply and demand.
Stocks Go Up when People Want to Buy Them
A stock price at any particular moment in time is based on the record of the last transaction where a buyer’s bidding price matched a seller’s asking price. It doesn’t mean that you would be able to buy or sell it at that price, so it technically represents a best estimate of how much the stock is worth in a particular point in time.
When more buyers are present, they will in effect need to increase their bids, pushing the stock prices higher (assuming sellers are willing to sell).
Stocks Go Down Because Everyone Wants Out
On the other hand, when a stock is hated, everyone wants to sell them. This pushes the price that buyers want to buy them at and the transaction price keeps going down, pushing the stock price lower.
Sure the reasons for stocks to go down might be because of bad news or an earnings miss or whatnot, but if no one wants to sell the stock, the price will not go down.
Why This is Important
Having realized this fundamentally helps us make sense of the ilogical. It will help us understand why stocks go down the day when there’s no news and help us understand why greed and fear play such a large role in this market. It will help us understand that short term, there is no way to predict which way a particular stock will go unless we are masters of psychology and can pinpoint every shareholders’ sentiment.
From now on, do our analysis but understand that the direct reason of why stock prices change is still because of supply and demand.
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“Stocks Go Up with People Want to Buy Them” ?? I think you meant to say “Stocks Go Up when People Want to Buy Them”
Thrillya: You are absolutely right and that’s fixed! Gotta love those typos!!! Thank you!
so a stocks value has no direct connection with the companies product?
dave: The product obviously has indirect value but it doesn’t affect the price directly at all. If you think about it, even if a product is good, the stock won’t go up unless people don’t know it’s good yet. Stocks go up only if people buy the stock.
o ok i totally get it. im a young investor, im trying to learn the stock market young so i can get ahead. i had my granpa explain it to me but still had a couple questions. thanks!
i hope you dont mind me asking you questions but i have a feeling i will have a lot.
but my question is – if you are trying to sell a stock and no one wants to buy it, will a bank buy the stock at a very low cost or would you just have to keep it?
dave: No problem and always glad to help. It’s great that you are starting early. Your time horizon will only help you!
If no one wants to buy it at the price you are willing to sell it at, there is no market (ie, a bank won’t buy it). This makes perfect sense if you think about it because otherwise you can always sell it at a high price (since you can set a price yourself).
There are however people called “market makers” (sometimes called the specialist) who will buy shares at the ask price and sell shares at the price. Their profit is usually the spread.
how many shares must be sold to cause a stock to go up
doug: There’s really no right or wrong answer to your question of “how many shares must be sold” to cause a stock to go up (or down). The market works similar to an auction. There are many sellers and buyers. The price is just the estimate of the last transaction. So for instance, if there are 3 people willing to sell 100 shares at $15 and 4 people willing to sell 100 shares at $15.01, then the price is $15 if there’s a transaction at $15 for 100 shares. If instead of 100 shares, there’s someone who want to buy 700 shares, then since there’s only 300 shares at $15, then they may pay $15.01 for all 700 shares so the price becomes $15.01.
Of course, this is a simplification of what actually happens but hopefully you get the idea.
can anyone tell me why the stock COIN is acting the way it is?? it makes no sense to me..wht made it go up so high before and what made it come down..
in fact when it was relaly high they had no profits or revenues or plants..now they are in operation and have fertilizers on their shelves so wht gives?
I’m totally new to the share game, one thing I’ve been wondering, if someone sells say 1 million pounds worth of shares, then to sell them, someone has to buy them. So when the trade happens why does it not show, a sell trade, and a buy trade – if that makes any sense – or does everyone just know that.
Another thing I have been watching a share and it had lots of buys, yet it still went down.
simon: Trades happen so fast there’s no way to show every trade (the histories). What you usually see are a few of the bids and asks that are around the prices of the shares.
You are correct in saying that every time a trade happens, someone is buying the shares that someone else is selling. However, if there are more sellers than buyers, sellers are more willing to lower the prices to attract buyers so the prices keep going down. It works the same way as any supply/demand market (thinking about real estate might be easier for you).
As a seller, i would like higher prices to make the most profit that i can., i dont understand how sellers, would want to lower their prices, to attract more buyers. I personally would want more money.
Why would anyone sell their stocks once they’ve lost most (50% or more) of their value? Especially stocks in large, financially strong companies. Common sense (and history) tells me to hold my stocks until the economy turns around rather than sell at a such a great loss. Who is selling now? As the stock prices decline, the volume has been huge, so there are definitely many, many sellers out there. I, and everyone else understand fear and greed, but itsn’t it a little late to be selling? Sellers have been leading the action for the past 8 months. Who would still be selling? Thank you.
I bought some UNG shares which is an ETF. How does the price per share fluctuate in comparison with common stocks? I’ve been told it moves with the price of natural gas. Are there any other factors?
how do you know when a stock is good to buy and when one isn’t? is it the change percent that is positive that is good? I Don’t Know. My classmates and i have a stock market game coming up and i just wanted to get some tips about how to play….If anyone can help?
The stock price is a function of all the buying interests versus the selling interests. In the short term, it’s heavily based on psychology but in the long term, stocks usually revert to fundamental earnings potential. Since you are playing a stock market game, I suspect that your time frame is short, so focus more on reasons people want to buy or sell a stock more so than the earnings.
FYI, if you were investing in the long term though, I’d focus on the latter since psychology is almost impossible to guess.
Thanks for the tip, but I still don’t understand.
The game is coming pretty soon, but I guess I will just take a chance.
Thanks though =)
People stop trying to make it more difficult than it is. It is nothing more than a supply and demand game. It has very little to do with earnings and future predictions and more to do with volume. If people
our buying the stock is climbing, when interest drops then the stock falls back. One of my favorite websites to look at stocks is clearstation.com , you can see snapshots of what the stock is dueing and it’s a great tool to use once you understand it. If you don’t know how to understand the charts goto etrade or any other tradeing website and read the tradeing data to help get you ready to properly trade.
Everbody had great questions about the stocks movement, the stock is based on supply and demand. Example: apple, when they came out with the iPhone there stock tripled in just a week so why is that, that is because more people liked iPhones big lines in stores so investers bought lots of shares the volume increased and people made money. So supply and demand make a big diffrence in market. Get use to it.