Few reasons for stock prices move up and down
The market price of a particular share is dependent on the demand/supply for that particular scrip. If the players in the market feel that a particular company has a track record of good performance or has the potential to do well in the future, the demand for the shares of the company increases and players are willing to pay higher prices to buy the share. And since the number of shares issued by the company is constant at a given point in time, any increase in demand would only increase the market price.
Fluctuations in a stock’s price occur partly because companies make or lose money. But that is not the only reason. There are many other factors not directly related to the company or its sector. Interest rates, for instance. When interest rates on deposits or bonds are high, stock prices generally go down. In such a situation, investors can make a decent amount of money by keeping their money in banks or in bonds.
Money supply may also affect stock prices. If there is more money floating around, some of it may flow into stocks, pushing up their prices. Other factors that cause price fluctuations are the time of year and public sentiments. Some stocks are seasonal, i.e cyclical stocks; they do well only during certain parts of the year and worse during other parts. Publicity also affects stock prices. If a newspaper story reports that Xyz Television has bought a stake in ABC Television, odds are that the price of Xyz’s stock will rise if the market thinks its a good decision. Otherwise it will fall. The price of ABC Television stocks may also go up because investors may feel that it is now in better hands. Thus, many factors affect the price of a stock.
Main approaches used for analyzing stocks and forecasting future movements.
The behavior of the price movement of a stock is said to predict its future movement. One such approach is called “technical analysis” and is based on the historical movements of the individual stocks as well as the indices. Their belief is that by plotting the price movements over time, they can discern certain patterns which will help them to predict the future price movements of the stocks. On the other hand we have “fundamental analysis”, where the forecasting is done on the basis of economic, industry and company data. Technical analysis is used more as a supplement to fundamental analysis rather than in isolation.
