Why Do Stock Prices Go Up And Down?
I'll give you the short answer first!
Stocks go up because more people want to buy than sell. When this happens they begin to bid higher prices than the stock has been currently trading. On the other side of the same coin, stocks go down because more people want to sell than buy. In order to quickly sell their shares, they are willing to accept a lower price.
Having said this, we'll take a look at the various reasons that cause traders to want to buy or sell a stock.
It is possible to look at the financial statements of a company and determine what the company is worth. Investors who take this approach are said to examine the company's "fundamentals". They attempt to find an undervalued stock - one that is trading below it's "book value". They feel that sooner or later other traders will realize that the company is worth more than the current price and begin bidding it up.
Another investment psychology it called the "technical approach". This is when traders closely examine charts of the stock's past performance looking for trends that they feel will be repeated in the near future. These traders also look at what is happening in the market as a whole trying to anticipate the effect it will have on an individual stock.
Sometimes companies trade at half their "book value" while at other times they may trade at double, triple, or even higher. When this happens it can create some sudden and large price swings. This volatility is what makes it possible to make large profits in the market. It is also responsible for huge losses.
The stock market is essentially a giant auction where ownership of large companies is for sale. If some investors think that a particular company will be a good investment, they are willing to bid the price up. By the same token, when many investors want to sell a stock at the same time the supply will exceed the demand and the price will drop.
Watching the stock market can be likened to watching a ball bounce. It goes up and comes down and then goes right back up. This can be extremely frustrating for many investors who want it to go up in a steady pattern. It is this volatility in the market as a whole and in the individual stocks that the experienced trader profits from. In the absence of a lot of experience, the individual investor needs a proven source of information and direction. The daily stock market recommendations from www.stock4today.com can supply this need.
Many investors (as opposed to traders) have a "buy and hold" philosophy. This would work well in a constantly rising market. Unfortunately, the stock market does not go up in a straight line. There are ups and downs that frustrate this type of investor. Today many investors have become "traders" who buy and sell on the fluctuations of the market and the 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
* rumors
* 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
* rumors
* no reason at all
Author Bio
Harry Hooper has over 30 years experience in portfolio management. He is the senior stock tracker for http://www.stock4today.com.
Article Source: http://www.ArticleGeek.com - Free Website Content
More Resources
Unable to open RSS Feed $XMLfilename with error HTTP ERROR: 404, exitingMore Investing Information:
Related Articles
How Can You Learn About Today's Market Trends?
Stock market trading is the exchange of trade certificates that vouch for the partial ownership of a particular company for a set price. Through stock trading, companies are able to raise funds that they use for various operational aspects.
Stock Scalping 101
Stock scalping refers to the illegal and deceptive practice of recommending that others purchase a security while secretly selling the same security. In recent years, the SEC and Justice Department have brought an increasing number of cases involving securities violations that involve scalping activity.
Rule 144 & the Adequate Current Public Information Standard
Rule 144(c) of the Securities Act of 1933, as amended (the "Securities Act") requires that stockholders of public companies relying upon the Rule to satisfy the adequate current public information requirement. The requirements depend upon whether the issuer is a reporting or non-reporting company.
How To Profit Using Technical Indicators
You can learn to profit from options using a few key techinical indicators. These simple tools will enable you to profit from options in any market condition.
Future Assist - Self Managed Superannuation set up and Investing
Future Assist are self managed superannutaion set up and investing specialists. Located in Sydney, Brisbane, Gold Coast and Melbourne.
Electronic Currency Exchange
One of the easiest ways to make money online today is to learn e-currency trading. Many people have spent countless hours looking for the perfect program that will make them a millionaire over night. The truth is, these programs do not exist. Electronic currency exchange allows people to make a long-term investment that can yield substantial profits in years to come.
Income Investing: Selecting the Right Stuff
You don't have to be a professional Investment Manager to professionally manage your investment portfolio, but you do need to have a long term plan and know something about Asset Allocation... a portfolio organization tool that is often misunderstood and almost always improperly used within the financial community. Remember, your unhappiness is Wall Street's most coveted asset. Don't humor them.
Investment Advisors 101 - Ask Some Questions
Why do people become Investment Advisors? Call me skeptical, but I don't think it's the ethereal glow they feel after implementing your new Financial Plan. Actually (once you appreciate that IAs are the primary delivery system for Wall Street's huge collection of one-size-fits-all products), you'll realize that it's the money.
New Retirement Savings Plan - Roth 401(k) Coming Into Effect
Unlike a traditional 401(k) Retirement Plan, a Roth 401k plan applies to all employees but the latter requires the contributions to the plan account with after-tax dollars while a 401k plan allows for contributions with pre-tax dollars.
The 40 Year Plan Over
What is truly driving the market of self directed IRA retirement investing? Is it the buff real estate market? Or are there other economic factors?
10 Essential Trading Elements
While most beginning traders focus their study on when to enter a position, traders who make money know that the money goes to those who do a lot of other things right. Here are ten things that every trader must know:
How to Begin Trading Commodities Futures
This instructional guide should help you in your first steps when it comes to futures trading. It might not give you all the answers, but it contains the most important elements that should help before you trade in these instruments.
Secure Your Retirement with a Rollover IRA
Switching your job? Retiring? Congratulations! A window of opportunity opens for you with the Rollover Individual Retirement Account or Rollover IRA.
Annuity Quotes
Choose an annuity quote that comes from the right source. Ensure that your agent is licensed, knowledgeable, reputable and experienced. It is always best to go for an agent that comes as a recommended source.
Purpose of NTL
NTL clarifies the method of Gulf of Mexico OCS Region (GOMR) regarding the implementation of requirements for general lease surety bonds that are present in 30 CFR 256, Subpart I.