Beginner questions - what influences the rise and fall of...

[charlie7]

Hi

I'm a beginner here but I was watching the Burberry stock today after the bad news from China came out, the stock fell about 17 pence in the first hour of the day. Then at midday it had risen back to the previous days close, before falling 20 pence by the end of the day.

I understand why it fell in the first place (because Burberry get their clothes manufactured in China but I don't know any more than that... so if someone could elaborate that would be great). But i'm confused why it rose at midday before falling. Is this simply because investors thought it was undervalued or did they think the news shouldn't affect it as badly as first presumed? Also why would it have dropped again by a similar amount after rising?

I am a beginner and I really want to find out more as to why stocks rise and fall so if anyone can explain what has happened to Burberry today that would be great and I'd really appreciate it.

Would anyone recommended any reading for me to understand why stocks rise and fall? At the moment I just follow them rising and falling based on positive and negative news but obviously there's a lot more to it than that.

Many thanks

Charlie

 

[VielGeld]

Supply and demand, buying and selling. Don't look into anything more meaningful than that or you'll be chasing ghosts.

Sometimes it sells because of fear, or rises because everyone thinks it's going up. Maybe a big player decided to get in on the action and pushed price the other way. Very little of it has anything to do with news.

 

[Jason101]

Hi

Would anyone recommended any reading for me to understand why stocks rise and fall?
Many thanks

Charlie

I recon if there was an answer to your question, its existence would instantly render it useless.

 

[ChocolateDigestive]

buying and selling. Don't look into anything more meaningful than that or you'll be chasing ghosts.

a common misconception. buying and selling doesn't cause price to move. for every seller there must be a buyer, therefore there is always the same volume of contracts sold as bought in the market.

what matters is who, why and how they are doing it.

put the kettle on and think about this. tah tah.

 

[BeginnerJoe]

Imagine you don't own any stock, it is in someone's financial interest to cause a stock you are watching to rise in price. So that you think the stock price is going to go through the roof. So you buy from them when the price is high.

Now that you own a stock, it is in someone's financial interest to cause the price to collapse. So that you panic sell to them at a low price to preserve what little value is left of it.

In effect the price rises and falls depending on your disposition. In this context you/your refers to the aggregate of "investor" joe's out there hoping to make a quick killing with no risk and no work.

Is making money that easy ? Yes, if the joe's are your customers.

 

[Lickyluciano]

The bid and ask and all the thinking behind the bid and the ask.

 

[Shakone]

a common misconception. buying and selling doesn't cause price to move. for every seller there must be a buyer, therefore there is always the same volume of contracts sold as bought in the market.

what matters is who, why and how they are doing it.

put the kettle on and think about this. tah tah.

Not really a misconception, rather a different way of viewing things.

If there are a vast majority (in money terms rather than in terms of people) urgent to buy, and very few willing to sell (less urgent), then the price will rise. Put another way, there was more buying pressure, than selling.

You state that buying doesn't cause price to move. So if you see a list of bids and asks, several levels deep, and someone buys up all the asks on that depth and wants to buy more, are you saying the price doesn't move? Did the buying not cause price to move then?

'For every buyer there must be a seller'. Well for every traded contract there must be a buyer and a seller. But that's not that same statement, at least to me.

 

[Mornington Crescent]

as long as there are both buyers and sellers at the quote then the price will remain fairly stable

when one side or the other dries up then the price will move to where there are both buyers and sellers again

Markets hunt for traders

 

[robster970]

Not really a misconception, rather a different way of viewing things.

If there are a vast majority (in money terms rather than in terms of people) urgent to buy, and very few willing to sell (less urgent), then the price will rise. Put another way, there was more buying pressure, than selling.

You state that buying doesn't cause price to move. So if you see a list of bids and asks, several levels deep, and someone buys up all the asks on that depth and wants to buy more, are you saying the price doesn't move? Did the buying not cause price to move then?

'For every buyer there must be a seller'. Well for every traded contract there must be a buyer and a seller. But that's not that same statement, at least to me.

I think Choc is trying to get Vielgeld to think about the mechanics of why price changes, how and why liquidity is provided, what happens when that liquidity is consumed, how different order types play a part, you know, the mechanisms that contribute to the continuous auction process.

As Vielgeld trades FX pairs off charts, he is not likely to appreciate the driving forces in the same way that others who use the DOM/T&S are used to.

@Charlie7 - it is difficult to know exactly why price moves around the way it does. However if you have a LOT of money at your disposal, you can engineer situations in the market on a particular security and profit at the expense of the ill-informed.

It ultimately boils down to where as a participant, you think value is in relation to the future and it's generally easier as a retail trader to follow the money rather than think you know what institutional money is going to do.

 

[MoonRocket]

Don't know about this stock.....but on the big stocks there are often short sellers.
So...When bad news comes out, prices drop and short sellers might want to close out their trade, to do this they have to buy back the shares.
Their action is often what drives shares up after a plunge.

 

[tomorton]

Hi charlie7.

You have posed a completely rational question in the western and scientific traditions. You have observed something happening and wish to rationalise why it does so.

But beware. The objective here is to make money, and more profit is better than less. Will understanding more about share prices make more profit or will being a better observer?