This time we will discuss why stock prices can go up/down.
For those of you who are just starting to invest in stocks, you may be thinking, why do stock prices go up and down?
it can go up and down every minute, every hour, every day, even every year, how can it go up and down like that huh?
what affects the rise and fall of stock prices?
Now, before we discuss the causes of the rise and fall of stock prices, first we will discuss the mechanism of the stock buying and selling transaction itself because this transaction will be the basis for the formation of stock prices.
Transactions in the capital market occur when there are buyers and sellers who agree
buying and selling certain shares at the same price, the concept is the same as buying and selling transactions in traditional markets, there are sellers and there are buyers.
The seller wants to sell his goods at a high price, while the buyer wants to buy his goods at a low price.
These sellers and buyers bargain with each other on prices until they finally agree to sell and buy goods at a certain price.
Now imagine. for example, there are two groups, there is a group of buyers who want to buy amazon shares and a group of sellers who want to sell amazon shares,
The buyer group wants to buy Amazon stock for $1.00 but the seller group wants to sell its stock at $1,5.00.
So, so far there has been no share purchase transaction because there is no price agreement between the buyer and the seller, but at some point, someone will relent, whether it’s the buyer or the seller to change the offer price.
for example, let’s say the seller relents and wants to sell Amazon stock for $1.00
if there is an agreement or price match between the seller and the buyer like that
There was a sale and purchase of Amazon shares at a price of $1.00 and that price became the benchmark for Amazon’s stock price for subsequent transactions.
In the context of stock transactions, this bargain is reflected in the bid and offer in the stock application. The bid is the bid price from the buyer and the offer is the price offered by the seller.
Well, if you look at the chart of stock price movements, this chart represents the price movements of stock transactions that have occurred between sellers and buyers
The question now is, why the stock transaction price can go up and down?
sometimes it only goes up and down 0.5%, sometimes it’s 2% but sometimes it can go up and down by tens of percent, what’s the cause?
In short, the movement was born from the buying power or buying power and the selling power or selling power of the buyers and sellers in the stock market, if the buying power in stock is higher than the selling power, it means that there are more buying demand for that stock.
Imagine if there was a strong urge to buy certain shares, even though the seller set the price above the previous transaction, the buyers would still execute the offer, so that transaction would push the stock price to continue to rise.
and vice versa, if a person’s selling power is higher than his buying power
it means more sales requests for the stock
Try to imagine, if there are many people who want to immediately sell certain shares
Even though the bid price from the buyer is below the price of the previous transaction, the sellers will continue to execute the bid as a transaction, so the executed price is always lower than the previous transaction, this is what makes the stock price continue to fall.
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This buying and selling power is certainly triggered by many factors, both from the company’s internal side, external news, and others.
Now, we will discuss 7 things that can affect stock price movements, namely company performance, industry sentiment, corporate action, economic conditions, technical price action, investment manager rebalancing, and foreign buying and selling. Let’s discuss them one by one
1.) Company Oerformance
We can see the company’s performance from the financial statements that are reported by the company every quarter or every year in the financial statements, we can see the company’s performance which is reflected in the financial statements, balance sheets, and cash flow statements.
The publication of financial reports is often a positive or negative sentiment, and that sentiment drives changes in stock prices
2.) Industrial Sentiment
This industrial sentiment is usually triggered by external conditions or certain policies that can affect the business performance of certain sectors, starting from the price of raw materials, the Rupiah exchange rate, the selling price of certain commodities, to the benchmark interest rate.
For example, regarding the increase or decrease in interest rates, this interest rate reference greatly influences the company’s performance in sectors that are closely related to credit interest. ranging from banking to property, so it’s no wonder that this sentiment can more or less affect stock price movements, whether it’s short-term or long-term.
3.) Corporate Action
Simply put, corporate action is an action, policy, or decision taken by a company which has an impact on investors or shareholders, whether it has an impact on the percentage of ownership, the number of shares owned, and the interests of other shareholders. and of course, the perception of these shareholders will affect the movement of the share price in question.
4.) Economic Conditions
For this case, we will take the example of the case in 2021, the United States Government decided to carry out a Stay At Home Order in various parts of the United States. The decision was taken to control the covid 19 outbreak. On the other hand, this policy certainly affects the real business performance of the data. will be in the financial statements in the next quarter, in the midst of this uncertainty, there are some traders or investors who do not take risks and finally decide to sell them what happened? the next day, the price of Amazon Shares fell, for example by 5% in one day
5.) Technical Price Action
Wvery stock price movement in the past is recorded and reflected on a chart that illustrates the psychological patterns of traders in trading stocks.
the chart is finally analyzed with various available indicators, and generates support and resistance points.
These support and resistance points are often used as benchmarks for traders to take certain actions, be it buying, selling, cutting losses, taking profits, and others.
Therefore, these points can affect purchasing power or selling power and ultimately affect stock price movements in the future.
6.) Investment Manager Portfolio Rebalancing
For those of you who don’t know, investment managers who are responsible for managing mutual fund portfolios also often make decisions to buy and sell shares in large quantities, usually, this action is done if there are stocks that are not good, industry conditions. considered to be no longer conducive to taking profits or adjusting their portfolios. according to the reference index.
Well, this buying and selling action from the mutual fund investment manager is called rebalancing or portfolio rebalancing
7.) Buying and Selling From Foreign Parties
You also need to know that foreign parties are quite active in the process of buying and selling shares, be it in America, Canada, Indonesia, and other countries.
Buying and selling shares from foreign parties can be influenced by various things, from global economic and geopolitical sentiments to national economic and political sentiments.
In fact, sometimes foreign parties also target certain stocks and push their share prices up.
We can find many indicators of foreign currency movements on the stock exchange from various stock analysis platforms available.
Well, those are seven factors that influence stock price movements
Hopefully it can be useful for you.
So far, how is your experience in investing or trading stocks? Tell us about your experience in the comments