What Makes A Stock Move Up or Down?

Dec.30, 2007 in Market Outlook

It seems like a simple question, yet 99 percent of the investing public does not have the correct answer. Most would answer that buyers move a market higher, and sellers move a market lower. Some would even go as far as saying that a stock moves down because there are more sellers than buyers, and it moves up when more buyers than sellers enter the market. This is partially correct, yet the real reason is a bit more complex. The true answer lies in the bid-ask spread.

The essence of trading is that every single share of stock that trades has both a buyer and a seller. That is why it is not 100 percent accurate to say that a stock moves higher because there are more buyers than sellers. For the stock to trade, there must be an equal amount of shares being bought and sold. The real answer is that the stock moves higher because of simple supply and demand,

All you need to do to make a stock go higher is to buy all the stock available for ale at a given price, then buy more at the next highest level where it is for sale.

The reason for this that for each and every stock there is only a limited number of shares for sale at each price level. Your buying the buying of others will cause the stock to tick higher if you are willing to buy more stock than is for sale at a given price. You and the other buyers will inevitably buy all of the stock for sale at the first price level, and then the remainder of your buy order will be bought at the next highest level or levels where stock is for sale. in other words, if the stock is in demand because of good news, the buyers will simply clean out the stock at each consecutive higher price level, causing the stock to trade higher.

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