Technical Factors That Affect Stock Prices 2
The prices in the stock market are determined by these factors and more. These forces which are often unpredictable explain why market volatility is the stock market is a norm.
In our last post, we reviewed some of the technical factors that contributed to price volatility. Here, we review even more technical factors that contribute to the unpredictable volatility on the price of your favorite stocks so as to develop an understanding of the stock market.
They include the demography of the market at any given time, market trends, and insider information.
Demography Of The Market
Population is spread across a wide demography. As such, even the stock market is made up of different people who contribute to the sentiment of the market in a diverse range of ways.
And because demography is never constant, there are investment opportunities and risks associated with it. On one hand, you have the young and middle aged investors who actively invest for growth in the stock market and on the other hand, you have the older investors who now want to pull out their funds from the stock market in order to meet retirement needs.
Where the market is primarily made up of middle-aged investors, then there will be more demand for stock investments and this will increase the multiples.
Stock Market Trends
A trend is simply referred to as the upward or downward movement of a stock's price over a period of time. Various trends govern the stock market; when there is an upward movement it is known as an uptrend and when it is downward over a period of time, it is said to be a downtrend.
They also cut across short-term, intermediate-term and long-term periods. These trends are usually created by a myriad of forces like international transactions, speculation/expectation and even supply and demand.
An example of a trend is where a stock keeps rising as its growth causes it to grow some more. This is the momentum effect. There are also circular trends that rotate after certain periods of time.
In order for you to gain from specific trends, you must move with it and not against it. However, because many trends govern the market, trying to predict the future with them will be a cumbersome activity.
Insider Information
The stock market moves based on information. How this information affects prices depends on a concept known as efficient market hypothesis and it basically refers to how asset prices reflect all available information.
Where this information is not public and known to only a few, those involved in it are inherently motivated by something else as opposed the intrinsic value of the stock. There are cases of executives making moves in the market like shorting specific stocks for what seems like no reason at all.
As a result of their effect on supply and demand, they affect the price and ultimately volatility of the stock market.
The prices in the stock market are determined by these factors and more. These forces which are often unpredictable explain why market volatility is the stock market is a norm.
Knowledge of them will help you understand why certain things happen in the market. With this information, you can employ necessary strategies to protect or enhance your investment portfolio.
Written by Lawretta Egba.