Why Stocks Move Like They Do
Nearly everyone invest in the stock market in one way or another. Whether they are investing into it directly or through an investment plan such as a 401k. When a company goes public it can sell shares of itself to investors on the open market. The value of these shares goes up and down daily giving them a reputation of being a “roller coaster of a ride”. Every investor wants to buy stocks that are going to go up. But what actually causes the value of a stock to go up and down? That is the milliondollar question, literally.
It supprise some people, but just because a stock does well does not necessarily mean that the price of the stock will go up. Everyone seems to believe that one of the stock market basics is that when a stock goes up it means it has profited and when it goes down it means it lost money.
However this is not necessarily a true statement. There is a real simple reason why the price of a stock goes up, more buyers than sellers. That’s it! If more people place a buy order on the stock then a sell order it will go up, vice versa. You can see this in action if you pay close attention to the market, there are times when a company will announce that their profits were up, and yet their stock took a hit. Why? Because investors wanted to see a higher increase and when they didn’t they sold the stock.
That is why strategies such as technical analysis can work so well. They may not pay attention to what the company of the stocks does, but they pay attention to patterns in the market that occur over and over again do to human nature.
But that doesn’t mean that fundamental analysis just does not work. looking at the company’s fundamentals can actually be very profitable in the long term. That is because if the stock is really a good investment then more people will be wanting to buy it in the future which will in turn cause it’s price to increase. Value investing is actually the process of finding strong investments before the mainstream media picks it up and everyone starts to buy.
So, now you know what really makes a stock move, but how can it help you? Simple it helps you to figure out the best approach for your investment plan. If you want to make money in the short term then studying technical analysis is very effective. It will help you to learn to trade in the short term much more then studying a company’s fundamentals.
On the other hand, if you want to just put your money in something that you are confident will go up in the long term then fundamental analysis still works great. People eventually see a great deal and buy it. By checking out a company’s fundamentals you can get ahead of the crowd. Of course it may take years before you see a profit, but if a stock truly is a good investment then chances are it will be pretty profitable in the long term.
Tags: how stocks move, What Makes A Stock Move
This entry was posted on Thursday, December 17th, 2009 at 8:36 am and is filed under investing, stocks. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.