Why Do Stock Prices Fluctuate?

The price of a stock is the amount agreed upon by a seller and a buyer.

The price of a stock is the amount agreed upon by a seller and a buyer in a continuous auction market. The stock price is determined by multiple factors such as supply and demand, opinions and outlooks and technical factors.

Supply and Demand

When a large block of shares is offered for sale, there may not be enough buyers to absorb the coming supply so the stock price drops. Conversely, a large buyer may push up the stock price because there are not enough shares available for sale at current prices.

Opinions

Investor decisions are influenced by their outlook and opinion. When the outlook is positive, investors are eager to buy, so prices rise; when it is negative, they are eager to sell, so prices fall.

Technical Factors

Stock prices move in trends. Short-term traders exploit trends as short as minute-by-minute fluctuations. Investors are attracted by rising prices and spooked by falling prices. Specialists and market makers make sure that prices are constantly changing in order to draw in buyers and sellers. A well-heeled trader can induce investors to act a certain way (buy or sell) by pushing the stock price in a particular direction with his own buying and selling.

References

• "Trading for a Living"; Dr. Alexander Elder; 1993
• PassTrak Series 7 General Securities Representative License Exam Manual; 2003
• "Technical Analysis of Stock Market Profits"; Richard W. Schabacker; 1932