When you own a Stock (or ten), you want its prices to increase. This is simply because when the Stock price goes up, the shares automatically becomes worth more.
But if you’ve ever seen a Stock chart or watched Stock prices at all, you’ll know that the Stock prices don’t only increase.
They go up and down and then they range and we could go on and on.
The point is that Stock prices change every day.
Hell, they change every minute of every day.
And all these movements are caused by different market forces.
These could be supply and demand, economic crises, company scandals, earnings reports, analyst predictions and so on.
Now, to help you understand all these different market forces that cause volatility, we’ll look at the most important ones in more detail below.
Before we get started, let’s take a second to remember how Stocks are exchanged.
Let’s say an investor is looking to buy shares in a certain organisation. They are matched with somebody who is trying to sell their shares in that same organisation.
But what happens if there are more people that are looking to buy their share, than people looking sell?
In such cases of high demand, the prices of Stocks often increase which subsequently convinces the owners to sell.
And it works the other way too! If there are more people looking to sell than investors are looking to buy, the prices will decrease which subsequently attracts more buyers.
It looks something like this.
There are many, many factors that have an influence on the overall demand for a Stock and ultimately its price. Let’s take a look at some of them in more detail below.
An organisation’s profits are amongst the most important factors for Stock prices. At the end of the day, we are all in it to make money and nobody wants to invest in a company that is not bringing in the dollars. Am I right?
Even though they say that there is no such thing as bad press, this does not apply to the Stock market. One bad public announcement or a news piece and watch the company’s Stock prices sink faster than Titanic.
An organisation’s growth potential that is based upon forecasts and analyst reports affects the prices of a Stock and the perceptions of investor big time.
When central banks or governments make big decisions that impact people or make changes to important policies, the Stocks market also reacts to these and adapts its prices.
When important economic data is released, the impact on the Stock market is significant. This data could be anything from labor rates, economic news, GDP, interest rate or consumer spending. If the data report is better than predicted, the Stock market’s value increases. On the other hand, if these economising indicators are worse than expected, folks will want to get rid of and the Stock market’s value will decrease.
If an oil field is blown up by terrorists, or if activists start protesting against child labor practices, or if a multinational crisis occurs – all these events would have a significant toll on Stock prices.
Rumour has it the Stock market is as bad as a Tennessee High School, rumour wise!
‘The CEO is about to step down!’
‘The CFO is accused of a fraud!’
‘The Head of Board is about to be investigated!’
’The management is talking about selling the company!’
Credible or not, all these rumours have a HUGE impact on the decision-making processes of investors and therefore the Stock prices.
Yes, it is possible to predict Stock price changes.
To a certain degree. And without a guarantee these predictions will be accurate.
Whilst you can make educated guesses, it is not possible to know EXACTLY how prices will fluctuate.
However, there are ways you can tilt the odds in your favour.
We’ll look at all these in the next lessons to give you the best possible tools to make you succeed in the Stocks market.
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