Share PricesShare prices aren't fixed. From the moment a stock is first sold to the public, its price will rise and fall based on free market forces. It is these ever-shifting market forces that make short-term movements of the stock market so difficult to predict. And that is precisely the reason why short-term stock market investing is so exciting.
Market forces aren't a total mystery, though. We know, for example, that share prices rise and fall primarily because of changes in supply and demand. In a free market system, if there are a fixed number of shares in circulation, then the price of the stock will rise as more people want to buy it, and fall as more people want to sell it.
Beyond supply and demand, the logic behind share prices gets a little fuzzy. Since supply of stock is generally fixed, the riddle is to figure out what influences demand. Why do people want to buy or sell a certain stock? Earnings and profit certainly play a large role. If companies post record sales in the most recent quarter, then they will probably attract more investors, pushing up the share prices. But earnings only tell half the story. There are other factors that may influence stock prices such as rumors, sector momentum, money rotation, diversification, news pertaining to that company or the market itself, and the overall economic environment.
Professional stock analysts and brokers (as well as amateur investors) try to take all of these factors into account when trying to predict the future movements of share prices.
After all, it's the change in share prices over time that determines its ultimate value to shareholders. The key to investing is "buy low, sell high." The safest way to buy low and sell high is to invest in slow growth stocks and hold onto them for many years. This allows share prices to weather short-term fluctuations, but average steady growth over time. Another investment strategy is to try to pick momentum stocks and cash out quickly after the share price skyrockets.
The inherent risk of the stock market is that any number of forces -- logical or otherwise -- can push stock prices up or down.
High-quality stock information is essential to making the right investing decisions in today's volatile markets. While Wall Street's ups and downs seem to come faster than ever, there's one publication that can give you an edge: Chart Poppers.
Our featured stock reports provide all the details on companies that are undervalued, takeover candidates, or innovative outperformers. Each issue provides market forecasts, investing insights, and a recommendation on the single most promising stock we've found.
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