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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{ 60 comments… read them below or add one }
“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?
It does actually. When a company does well, people want to buy that stock because they know that a part of that company(a share) will be more valuable. When people start buying it because the company has a good product, the stock price goes up. This is all spectulative meaning that it is what the buyers are willing to buy at and the sellers are willing to sell at.
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?
T: As you may know, there was a stock market crash in 2008. In 2008 there was a bubble burst and the stock prices crash. I think your question is: What causes a crash to occur?
Here is your answer: Because the world in connected not only through communications but also industry, when for example auto industry stock goes down so does rubber, steel, and leather commodities, if one stock goes down other stocks are affected. As for the fertilizer company, perhaps a bad harvest or a better brand of crop fertilizer was produced that caused the stock price to tank. Also during the crash in 2008, look carefully at the stocks that died and the stocks that lived, industry and other factory type company’s stock prices went down and in fact have failed entirely. Now, look at the unemployment rate, and notice what types of people are unemployed. You will notice that it isn’t the educated, they are people who work in very service oriented jobs.
I hoped that answered your question. Please feel free to ask more, message me on Twitter; @RanjitMarathay
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.
Look at an equilibrium chart; if you sell something at a low price and have lots of buyers, then you will make more money the selling something at a high price and getting only a few buyers.
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.
Most professional traders have strategy. Some will tell you to hold on to your stock and things will get better. Others will tell you share prices are going down for at least some time, sell it now and buy it when the price goes even more down. This will avoid you a greater loss in short term and will make you lots of money in long term.
this is my opinion anyway, hope it makes sense.
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.
So with all of the problems that Toyota (TM) is having, how come their stock price hasn’t dropped significantly?
Toyota has too large of a market share for there stock to go down dramatically due to one flop product.
I’ve heard this for years, the ol supply and demand story. I doubt it. I would like to understand exactly how the role of large funds and market makers play in pricing. Not theoretically, but acutally. I believe there is a story yet to be told about how the market is manipulated. What else can explain why the market is “rallying” when most of the stocks are seriously overpriced?
Watching the ticker, I wonder who are all these investors, and why are they in and out of stocks so quickly. How many traders are there, and why are they in and out so fast. Just look at any issue, and you’ll see it. I do not believe there are that many people interested in all the issues to provide the volatility we see.
Help me understand. For every buyer there is a seller, so how many buyers does it take to take a stock from $10 to $9, and back to $10. Unless you have the same buyers and the same sellers.
I understand the influence of daytraders, but I doubt they are chasing all the stocks at once.
Please forgive me if I sound cynical, although I am, but would like to hear any comments.
Great numbers. To jack up a stock price, many many investors are needed to buy into the stock for it to go up. It is the classic boiler room, however it is assumed that in a boiler room scandal the seller is marketing worthless shares to people in order to make a profit through Commision or his/her own shares. The buyers and sellers change rapidly. There are also people designated as buyers who work for the government.
Buying and selling of stock may have something to do with demand in the NYSE, but in pennyland, MM’s maniplulate the stock price even when people are buying at the ask. They push the price down to cover their short positions.
I have been trading stocks gor the past 4 months and trading lots of stocks. Here is the deal for who are new in investment of stock market. I have experianced a fall before, 5 years ago I had $20,000 in stock market and no experiance in trading or know about the market. So I did what everone else is doing I bought blind on cadm (cardima) back than there was a new that the company is going to introduce the their product in the USA, well it did but got denied by the FDA. At than the stock was at $1.15 I bought $20,000 worth of shares it sid good at first and told my self to hang on to the stock, than suddenly luck changed no vol in stock so it droped to 30cents and after that the company slashed the shares and down to 2000 shares. What a luck 🙁 huhn.
So after that I sold the stock and never trade again until now, I have found this guy daytradingradio blog so I joins is blog and what ever he bought I bought because he knew how to look at the stock charts and prdict if the stock will go up or down he’s pretty good so far I have been in profit, I started with him with only $2000 now I am reding in $35,000. Which in six months.
The whole sanerio is that you have to know about the markit and know how to read the charts and prdict tommorows prices. Good luck to all Lol Just start will small and paitents.
investor
who is the knowledgable investor you are working with?
john
So a company can lose money and the stock price increases if tons of shares are bought up? Sounds like a supply and demand of stocks is more important than the value of the company your buying.
Which then sounds like all that mostly matters is how good the company’s PR and Marketing is. If they can spin negatives into positives, then the stock will do well.
corp= needs fund
need of funds= creating shares or stocks
creating shares= volume or (how much money need it to fund the corp) volume of shares
volume of share= set the price for the stock (high volume of shares needed= cheaper stock)
cheap stock= more bidders
more bidders= higher stock price
higher stock price= more profit to the share owners
more profit to the share owners= more selling to make the profit
more selling= lower the price for selling on stock
lower the price of stock= the thinking for price of stock will go higher
the thinking the price of stock will be higher= more money and investers
What determines the value of the shares of a company that is just starting of and has no history? would the shareholders just set a price and vary it depending on the demand?
Another Question: If share owners sell their shares would they not receive less profits from the company?
(I started studying business 2 weeks ago) 🙂
The IPO: Initial Projected Offering. It is basically speculation the company itself throws a price out there and depending on what people thing is a good price, they will buy and sell accordingly. Facebook is one of these companies that are struggling with this right now. Consider looking at them.
so if a company puts out more products then their stock is going to worth more is that right or is it that more people like that company so that put money into it like lets say i like kmart more then i like walmart so i put money into kmarts stock because i like them better is that way people choose what they do or do they do it because the company sells more products like sony and microsoft becuse i am confused dose product have to do anything with the stock market at all
What profit does a company make when people buy and sell its shares. People buy the stock when its low and sell it when its value increases. How is a company affected?
I’ve read all the comments on this site and I’m starting to get the impression that no matter how successful a company is and how much profit they make, the price of the stock will not change at all unless there are people buying or selling the stock. I was under the impression that when you buy stock in a company, you become a shareholder and you reap the rewards of the company’s success and profits by making your shares worth more.
If you want to sell your shares and make a profit, there might be people out there that are willing to buy your shares at the increased price because they think the company will be even more profitable and they can do the same thing you’re doing. I believe at some point, that system will level out and it will be difficult to make profit. If you want to make a profit, you have to get in and out at the right times.
I may be wrong about my theory but it makes sense to me. If there is anybody out there that agrees or disagrees with me, I would like to hear about it so I can learn more.
I have read all the comments and I’m interested in stock trading, businesses etc. as I want to be a stock broker. In my theory stocks are indeed depending on supply & demand, but that supply & demand is based on the growth or decline of the company you’re investing in. For example the company leader dies in accident that news would provoke selling of stocks because a new leader is a risk that he won’t be able to manage the company as good as the other and thus mass selling causes the stock prices to go down. This is basically a speculation that can be wrong but it affects the stock market big time in my opinion. Good timing is essential as well and awareness of events and stock history. But in the end they say stock market is the gamble for people in suits. 🙂 You need a healthy dose of luck and nerve to pull trough.
I am new to this and not doing really well. Here is a scenario I have a question for: Company A is a IT company . There stock is at $20. Company B is a different type of IT company. There stock is $7. Company A buys Company B. How will both stocks be effected?
I have a question: if there is a recession or sell-off should i keep the stock or should i sell all at a lower price ?
My question was “If nobody sells their stock can the stock market go down?”
So if nobody sold the markets would not crash like this.
Please cut out all the intelligent jargon and listen: Trading on the stock market is GAMBLING! Nothing more, nothing less. The so called value of stock traded has NOTHING to do with a country’s economy.
But, yes: Every TV channel and publicity media would like you to believe there’s a connection. Like in all forms of gambling, the only winners here are the stock exchanges because, like auctioneers, they get a percentage of every sale – whether it’s up or down. That’s the reason for all this hype.
In the end, it’s true: There are only speculators and no investors in the stock market.
WELL SAID. Not only is it just like gambling on a sports game but its like gambling when you find out a player is shaving points. The fix is in, its a hoax. its a absolute joke, these people should be locked up
Hi, I have some question and seemingly no one talk much about it.
On the 4 August 2011, all stocks market went down, Down Jones went down 479.76 point with 526653000 volume, and on 8 August Down Jones was down 635 point with only 2615150000 in volume.
How can Dow Jones went down more in the low volume and did make more damage to my 403b mutual funds than the day with 479.76 with high volume. According to my 403b mutual funds, I lost more on the low volume day than high volume day?
I want to know how correlation between volume and up down of stocks, since often I hear from CNBC always say ” today up but can not trust because there is no volume! or stocks go down with high volume so it is very bad stocks !
Thank you
For volume look at trading method called volume spread analysis.
Cant believe no correct explaination yet.
Listen up.
Harry, you are correct, dont doubt yourself. When you purchase stocks of a specific company, you are entitled to the company’s rights, voting rights, dividend rights, and asset rights. You are a shareholder, if the current year they earn 50 billion. And they decided to pay all that as dividend. If you have 1% of the total shares of that company, you would be entitled to 1% of that 50 billion dividend paid to all shareholders.
As for all your questions about the stock price’s movement versus the company’s performance. No, they are not 100% directly related. Stock price like explained from the experienced experts are simply the supply and demand model. Stock prices move up when there are MORE buyers than sellers. Example 100 hungry humans wanting to buy 1 chicken each. There are only 10 sellers. 100 humans want to buy at 10$. 1 desperate seller wanting to sell at 11$. 4 at 15$. 5 at 40$. You bet your ass, by the end of the day the price of chicken went from 10$ to 40$. Too much demand and supply. You ask why? Out of the 100 humans wanting to buy, the first smart guy buys the first chicken at 11$, he is happy, he goes home. Now the 99 stares across the room at 4 chickens being sold at 15$. Better buy it fast before it’s gone. I wont explain the reversed effect, you get the picture.
Next, ideally, we love to think when the company is doing good, the shares would go up, when the company has a problem, the shares would drop. BUT NO. Let’s say I have an urgent need to buy a new house, and I need money desperately, can I not sell my shares? Of course I can. Let’s say there are 10 buyers and 10 sellers, the price is basically fixed at equilibrium. No news on the company. But I need to sell shares to buy a new house. I’ll do it, guess what, I just caused the share price to drop. I will sell ALL shares at whatever prices I can get. So to sum it up, price of shares is influenced by the supply and demand model WITH factors but not limited to… company earnings, global economy outlook, personal reasons, war, government instability, abundance of money, attractiveness of other investment options, marketmakers.
Those that ask when a new product is launched, why the share prices will rise. That is investor expectation, that the company’s earnings will rise. Earnings per share. If a company’s earnings per share is 10 dollars, and their share price is 100. What is that? 10% Earnings per share will go up or down depending on the profit of the company, let’s say they introduced a new iphone, that will boost sales by 30%, making the earnings per share to 13. Guess what the new share price would be? 130. Now watch supply and demand in action. The price will go from 100-130, this is the “cheap” range, and THIS is where the smart people are buying and the dumb ones still selling. By the time the price gets to 130, the dumb ones start buying, because they see that this stock is rocketing and all the brokers start recommending them, advertisement “HOT STOCK 30% in 2 days”. Price climbs to 150, the smart investors calculate this. Earnings per share 13 divided by 150 = 8.6%, too low, OVERVALUED. Starts selling em.
Your question as to why sometimes a firm has a new product and yet the price drops. Because at the same time, investors are cautious because there is a war going on, the government is about to run out of money, terrorism. They feel unsafe, even though their stocks are going to be performing better soon, they still would like to get rid of all stocks. Thus = sell.
Toyota having problems yet the price dont drop. What do you expect? Tomorrow toyota dissapears from the world? Big firms solve problems and get over it. During this time, the global economy is doing well, everything is recovering, investors are all smiling and happy.
Hope that explains everything.
And no, you dont make money by going with the crowd. You have to be that 10% who rips off the other 90%. Money dont just get created, they are earned from other people’s losses.
Mascu,
I have been planning to start investing in the stock market but do not know how to make money out of it until I read your post.
I had imagined that the stock market requires enough work to be a whole profession by itself and you have shown me just that.
“And no, you dont make money by going with the crowd. You have to be that 10% who rips off the other 90%. Money dont just get created, they are earned from other people’s losses” – Wolves eat sheeps, so you’d better be the wolf (it sounds harsh but it is what it is) I believe every novice in this field should know this, or else, they would become ‘sheeps’ (but then again, we can’t all be wolves, which is why I think your post is golden)
Thank you for sharing this knowledge.
Dit,
Volume has nothing to do with how much losses it damages to your mutual fund. So what you are saying is if the stock market drops 2% with 1,000,000 volume and another day the stock drops 1% with 50,000,000 volume. That the 1% with 50 million would hurt you more?
-.-
Volume is the amount of trading in that particular day with regards to the price movement. Doesn’t magnify the loss or gain. 2% is 2% regardless if 1000 volume or 1 billion volume.
With your regards to CNBC’s comment. When you see the stock market go up with a low volume, you can regard that as a fake positive. Meaning, a small group of people are trying to move up the market. When you see the stock drops a lot with a high volume, that is a message that, this is the real negative. Alot of people are trying to pull down the market. After a market has crashed, you do not buy when the market is going up with low volume. You must have huge volume to prove that the majority of the market agree that, it’s time to buy.
Understand?
Same with if the market is going up. Up up up up then suddenly the day ends with a negative with low volume. What does this means? The drop to negative is “fake”, the whole crowd is moving up, but a small crowd started selling.
This is all about Technical Analysis….U r rite, stocks go up and down based on basic supply and demand… But Fundamental Analysis also very important to choose best stock….Im using both method….Warren Buffett is the best investor in the world and one of the richest man in the world….he is long term investor,he use fundamental anaylsis method to buy stock….its does;nt matter whatever u r using technical or fundamental way to choose stock…hope u all understand what i mean…gudluck everyone….
Why does stock price typically turn before the economy? Is it caused by supply and demand or expectation from economic indicator? For sure we know that stock price is the leading indicator, but why?
If i put money in a mutual fund company, will i be the owner of shares which the mutual fund company buys? Or is it the mutual fund company owns those shares?
I have a question. Where can I go on the web to find companies that have very few stock shares (i.e. 1000 shares to 10,000 shares) but are trading on the nasdaq?
Idealy it’d be nice to be able to find a company that has the following characteristics for what I am looking for:
1) It’s traded on the nasdaq
2) It has very low amount of shares 1000 – 10,000 shares
3) It has a low price of it’s stock, something under $5 preferably.
Anyone know of any good resources on the web that can make my life easier in being able to find this type of information?
Oh I forgot one more question. Does anyone know of any resources on the web where you can receive information of how much shares of a certain company was traded? So, percentage of volume traded for that day?
I’m sure you know where to find this but I’m not at trading.
Hi, I understand the principle of supply and demand – i think ?
However, when the price is in free fall and it’s clear that a company is about to go under and people are desperate to sell – where do these shares go? Surely nobody is wanting to buy them yet it still seems possible to sell. That one has confused me for years but i guess there must be an answer?
Actually, there’s always someone on the other side who takes the trade. I, for instance, have bought shares of companies AFTER they’ve announced a restructure. I wasn’t attempting to hold onto their shares that will eventually go to $0 of course, but there’s always a price someone will be willing to buy or sell a share of stock.
Let’s say you have 100 sellers who all wish to sell at the current market price and only 50 buyers who wish to buy at the current market price. Since all orders are market orders, shouldn’t the stock price stay the same? Shouldn’t the price of the stock fall only if sellers place a sell below the current market price (and buyers accept)? Thanks!!
The question that this article answers is not “What makes a stock go up or down?”
This question that this articles answers is “What makes a shareholder buy or sell his/her/its shares?”
What I’d like to know is a matter of math; to what extent will a given transaction cause the price per share to fluctuate?
E.g. There are 100,000 shares of X Corp. stock outstanding. The current price of stock in X Corp. is $10/share. A buys 100 shares of X Corp. at $11 per share. Assume that no other transactions occur between any other investors except this one single transaction.
What is the price per share of X Corp. stock following A’s purchase? Is the price per share now $11, assuming that no other transactions have yet occurred?
It seems that today stocks move more on emotion and media hype than anything. In the long run, the market always goes up. That’s the “Buffet” rule in action.
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