What Really Controls the Stock Market? — ASXnewbie.com
Weekly Ramblings of an Australian Stock Trader - incorporating ASXweekendtrader.com
Random header image... Refresh for more!

What Really Controls the Stock Market?

Apart from the big financiers and institutions you will find that in reality it is “Fear and Greed” that drives the market along. Of course traders’ reactions also play a part. Here is an example:

You have selected your next profitable stock and have decided to buy. It looks great. It is currently priced nicely at a nice affordable $1.00 per share. Unfortunately quite a few other traders think it is great as well and the share price is starting to rise upwards.

So suddenly instead of one choice (buying) you now have several.

1. Stay with the original price and wait for the market to hopefully slow and reverse back to your price.

2. Chase the price and collect the number of shares you have already decided on previously.

3. Or chase the price but keep to your dollar limit thus buying a smaller parcel of shares.

A few traders and investors will wait for the market to recede, but they are in the minority as the majority of traders will chase the price.
The faster the share price moves away from them the more emotional the trader becomes. (Sounds familiar?)
Frightened that they might miss out they proceed to outbid the other buyers which means you have to pay more for the stock than you intended.

Although each trade made is an individual one. Counted altogether they make crowd sentiment and a crowd reaction. This is what is controlling the share market.

Remember sellers are pessimistic .This is because they believe that the share price is going to head downwards. So as to either lock in profits or stop further losses they sell.

Now the buyer is an optimist who believes that the share price is headed only one way and that is upwards.

Every single share transaction that occurs is made up one of these. Both of the traders are of the opposite opinion. Unfortunately only one opinion will be right and only time will tell us which one it will be.

0 comments

There are no comments yet...

Kick things off by filling out the form below.

Leave a Comment