Stock Picking: Why Share Prices Fall and Rise

The price of a share of a publicly traded stock of a company is the price at which a share of the company was last traded in the stock market. For example, the share price of Amazon.com (AMZN) on the NASDAQ stock exchange was USD 1447.45 at 9:30 AM on 20th February 2018. Also, for example in the National Stock Exchange of India, the price of Maruti Suzuki (Maruti) was INR 8770.60 at 9:15 AM on 21st February 2018.

 

 Why Share Prices Fall and Rise

 

Why the share prices fall and rise

Whenever the stock traders agree to trade a company's share in the stock exchange at a price higher than the last traded price, the share price increases. Whereas, when the stock traders agree to trade the company's share in the stock exchange at a price lower than the last traded price, the share price decreases. One may ask the question, why would the share traders be ready to trade a share at a price which is lower or higher than the last traded price.

Let's see first why the stock traders agree to trade shares at a price lower than the last traded price. Whenever there is a fear in the minds of the investors that the share price will fall further below, they try to sell their shares at what they think is the best price even if it is below the last traded price.

The investors become fearful when there is a negative news about a company, for example, the company did not meet the profit expectations or shows a loss in the financial results. We can see that Walmart shares fell more than 10% in February 2018 after reporting weak online sales and disappointing earnings. In India, the shares of Punjab Nationnal Bank PNB fell around 10% in February 2018 on the news of banking fraud.

Now, let's see why share traders agree to trade stocks at a price higher than the last traded price. When there is a positive news about a company, investors become greedy that the share prices will further increase in future, and they try to buy the shares even at a higher price than the last traded price. For example, Amazon shares rose more than 6% in February 2018 after showing revenue and profits much higher than expectations. In India, Tata Steel shares rose over 4% on strong quarter 3 results in February 2018.

You can analyze whether the stock price of a company is going to fall or rise and then sell or buy depending on your analysis. You can buy a stock if your analysis shows that its price will increase in future and sell it if you think its price will go down in future.



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