How does a stock price actually go up or down?

[Wandering Dragon]

So i am new to trading stocks and iv been trying to understand it fully, and so based on my research i see people using all these tools and indicators which are ultimately different ways of looking at the buy/sell transactions and movement of price. So then traders both buyers and sellers are mostly making decisions based on movement of price. So what i really don't understand fully is the actual "movement of price", what is causing that to move up and down and what determines to what price it goes up and down (what factors is it based on).

I know google/youtube says supply and demand, and i understand how supply and demand effects prices in the physical market, but not the digital trading market. Supply and Demand in reflected on the order book and completed orders in the digital trading but after countless hours of just staring and the order books i don't seem to see any correlation between buy/sell activity and the actual price movement. e.g i look on the order book and i see average buy sell volumes of $100,000 at varying prices(say 10pts up and down in the buy/sell), and suddenly i see a sell order $10,000,000, and the order goes through and after an hour of watching i see no out of ordinary price movement.

Im hoping someone here knows this stuff like the back of their hand and can explain to me if you were a programmer, what would be the formula for price calculation. Because the way i see it for every sell order there is a buy order so why or how would that effect the price?

Cheers

 

[StockyGuy]

Because the way i see it for every sell order there is a buy order so why or how would that effect the price?

I don't feel qualified to answer it all, but on your last point: no, not exactly; some orders are just "gimme that stock, now; at any price!" or "get me out NOW - I'm done". That's a market buy or market sell order. When a whole lot of eg sellers (or only a few with big holdings) want out they all just take the next available price offered in the order book - once that is observed other buyers subsequently offer less and less and so on, because they can. (I'm oversimplifying quite a bit.)

What you mentioned about volume, maybe you need to look on a daily chart but high volume often signals a new direction for a stock. How it closed the day, not just the total volume traded, is also important. If it's just one big seller bowing out it doesn't mean other big stock holders are going to let their stock go at whatever the market is offering

 

[barney]

the way i see it for every sell order there is a buy order so why or how would that effect the price? Cheers

Hi WD …. For every Sell order there is not necessarily a buy order and vica verca. When buyers exceed sellers at a given price level, or when sellers exceed buyers at a certain price level …. that is when and how price is able to move to different price levels. ie equilibrium is when buyers and sellers agree on price (buy and or sell at the same level) when equilibrium is broken (buyers or seller volume is not the same), price can move

You generally wont see this by staring at the market depth on your computer screen as a high percentage of buying/selling is done at market price and comes from "off screen" (is not sitting in market depth on screen)

The high Volume trade you refer to above often doesn't change price because it is a pre arranged "cross trade" (a pre organized trade between agreeing parties at an agreed price)

Hope that all makes sense.

 

[Wandering Dragon]

Hi WD …. For every Sell order there is not necessarily a buy order and vica verca.

You generally wont see this by staring at the market depth on your computer screen as a high percentage of buying/selling is done at market price and comes from "off screen" (is not sitting in market depth on screen)

sorry i meant looking at the "completed" buy/sell orders.

When buyers exceed sellers at a given price level, or when sellers exceed buyers at a certain price level …. that is when and how price is able to move to different price levels. ie equilibrium is when buyers and sellers agree on price (buy and or sell at the same level) when equilibrium is broken (buyers or seller volume is not the same), price can move

Buy buyers exceeding sellers at any given price range do you mean in a case where the buyers are willing to buy above the current price or vise versa?

You generally wont see this by staring at the market depth on your computer screen as a high percentage of buying/selling is done at market price and comes from "off screen" (is not sitting in market depth on screen)

On my exchange you can see all completed orders with time date amount, weather it was a buy or sell order etc

The high Volume trade you refer to above often doesn't change price because it is a pre arranged "cross trade" (a pre organized trade between agreeing parties at an agreed price)

Hope that all makes sense.

DO you mean limit order vs instant order at market price? everything im talking about is based on what im seeing on my exchange of executed orders

 

[Wandering Dragon]

I don't feel qualified to answer it all, but on your last point: no, not exactly; some orders are just "gimme that stock, now; at any price!" or "get me out NOW - I'm done". That's a market buy or market sell order. When a whole lot of eg sellers (or only a few with big holdings) want out they all just take the next available price offered in the order book - once that is observed other buyers subsequently offer less and less and so on, because they can. (I'm oversimplifying quite a bit.)

But how does that scenario actually affect the digital price. So computer goes (I have a sell order for x amount of stock at market price, and a buy order for same amount at market price, order executed) so wouldnt that mean the price wouldnt change because people are trading at that price?

Please give me the complicated answer

What you mentioned about volume, maybe you need to look on a daily chart but high volume often signals a new direction for a stock. How it closed the day, not just the total volume traded, is also important. If it's just one big seller bowing out it doesn't mean other big stock holders are going to let their stock go at whatever the market is offering

But weather one big holder sells out or all big holders sell out, isn't the stock just trading hands at a specific price. how is the price calculated based on that?

 

[peter2]

There's been further exchanges since I started writing this post (apologies if I'm repeating something).

It's very simple.
Price moves up when someone is willing to buy it at a price higher than the last sale price.
Price moves down when someone is willing to sell it at a price lower than the last sale price.

Every transaction has a buyer and a seller.

A better question is, why would someone pay more than the last price ? A reasonable answer is that the person thinks that they will be able to sell it at a higher price sometime in the future. Is this the only reason? Nope. A person buying now and crossing the spread to buy it may be closing a trade started earlier by selling first (shorting).

The market consists of a very large and diverse group of people (participants). Very few of them are watching price during the day. Very few of them consider price movements at all. All participants buy and sell through the market exchanges that facilitate every buy/sell transaction.

Movements in price is governed by supply and demand, but you must understand that this in happening across every time frame in every session. Every micro second that a market is open prices move due to forces of supply and demand.

Supply and demand is nurtured by new and old information. Previous price movement is information that is used by some market participants. Company fundamentals, management guidance and comments, director transactions, current and future corporate and economic outlook are many of the information sources that govern supply and demand. Crowd behaviour, crowd sentiment, personal fear and greed add to the sources that govern supply and demand.

The order book is not the market. The order book is a micro second snapshot of the visible orders in the market. The order book doesn't show all the orders and certainly doesn't show the correct order sizes (iceberg orders etc).

 

[StockyGuy]

But how does that scenario actually affect the digital price. So computer goes (I have a sell order for x amount of stock at market price, and a buy order for same amount at market price, order executed) so wouldnt that mean the price wouldnt change because people are trading at that price?

Please give me the complicated answer



But weather one big holder sells out or all big holders sell out, isn't the stock just trading hands at a specific price. how is the price calculated based on that?

A more complicated answer is I think even with the market order there can be control by seller's broker to make sure the seller does not get REALLY bad gappy price. Also say eg big super fund that's been told to sell down its holding of X stock out of its "super duper growth portfolio" may not use market sell order per se but they may lower the order amount to just above highest offer so they can sell out quickly. They may also sell down in staggered portions, over days.

Our Aussie stock daily opening auction is a complicated beast unto itself. You may want to look up.

It's about momentum, who's applying the pressure - buyers or sellers. Like when you ask the guy at the car dealership for a discount and he gives you nothing, or else a minuscule nominal reduction. He can tell you'll take the car anyway. So even though price is agreed and accepted, the seller has the power, and both parties know it. (This is how it is with a Toyota Yaris lol - maybe different story with a new luxury vehicle.) You may want a discount but you'd probably still buy it if it cost an EXTRA 1k!

But I'm barely more than a novice myself so will follow along if any more experienced folks contribute.

 

[tech/a]

The Question is WHAT MOVES PRICE.

My answer is Perception.
Any investment opportunity is accepted or rejected upon perception.

Perception of any investment is in the eyes of the investor who will do
all sorts of analysis to determine opportunity.
Generally you look for capital growth and earnings from the investment
(Well I do).

Once this is decided price movement will be dependent on Supply.
I leave demand out of the equation. WHY?

Supply stifles price. If its constant and increasing then price will remain'
the same or decrease.
If its withdrawn and people hold then any sort of demand will have an increase in price.
As buyers look for a piece of the action at a price they see as good value. As price rises
so does the perception.

Now complicate that as much as you like.

 

[Gringotts Bank]

You can look at it a different way, which is "why doesn't a price move?". It doesn't move when all market participants see fair value at the current price. When enough potential buyers expect future growth, they are willing to step up and pay above the current fair value and create movement up until a new fair value is established. Everyone is assessing "is this price fair value, considering the company's future prospects?".

 

[Wandering Dragon]

It's very simple.
Price moves up when someone is willing to buy it at a price higher than the last sale price.
Price moves down when someone is willing to sell it at a price lower than the last sale price.

I read this on another forum as well, but does volume of purchase or sale have anything to do with it? I mean if i have $10k worth of stock i purchased at $1, the current price $1.10 does that mean, if i purchase an extra $500 worth at $5, way above the current price, the price moves to $5 per stock?

 

[Garpal Gumnut]

I take all of the above, particularly @tech/a view on supply.

I can see very little supply on many of the stocks in my SMSF, which doesn't gruntle me.

I am therefore in sell mode on my long term stocks whether they be winners or losers.

We are heading in to Winerfell imo and cash will be king.

No evidence, comrades, just a gut feeling from 40 years of long term trading.

gg

 

[Joules MM1]

I read this on another forum as well, but does volume of purchase or sale have anything to do with it? I mean if i have $10k worth of stock i purchased at $1, the current price $1.10 does that mean, if i purchase an extra $500 worth at $5, way above the current price, the price moves to $5 per stock?

dont do that

 

[Joules MM1]

I read this on another forum as well, but does volume of purchase or sale have anything to do with it? I mean if i have $10k worth of stock i purchased at $1, the current price $1.10 does that mean, if i purchase an extra $500 worth at $5, way above the current price, the price moves to $5 per stock?

i think it is a workable idea for you to supply data with your questions

it is not the answer that is as important as the question, what is the context of the question

you may receive the correct answer but it maybe misapplied in your own thinking as the answer has a context that is not workable with your context or your language

i think this is a key idea for you to think on and for those offering their time to know their answers are convertible to current understanding

 

[Wandering Dragon]

dont do that

its a hypothetical question lol

If price is established by the price that the last transaction took place above or bellow the current price, then the first question that would pop up is surely what i asked.

this is why im finding it confusing to understand. supply and demand are based on each price, there's more supply at higher prices and there is more demand at lower prices, but for it to effect price i would have thought volume of the trade would have something to do with it, other wise very small volumes would have the same affect and hence price could be easily manipulated by anyone and prices would fluctuate a lot more

 

[Joules MM1]

sweet jesus, even i'm doing it

do not pluck an non-applicable "situation" or a "what happens now" question randomly out of thin air

make your questions cohesive, less ad-hoc, make them make sense to show you understand the basic premise and process todate, that you have a fluency in your thinking as each idea comes to you (for each poster, each author, the idea is already a workable thesis)

learning to drive a car by asking initial questions such as "if i drive at 100klicks into a 1foot thick wall will i scratch the car?" is a constructive but out of context question ...make em make sense

i also think it a good idea for you to get a lexicon and use it immediately
surgeons have specific lexicon for theatre (versus "hey hand me that big saw, no, the bigger one...")

a start: attached is a glossary of terms from thechartist.com.au

 

[tech/a]

If you put in a buy at $5 on a $1.10 Stock and its currently trading at $1.10 you'll get filled at $1.10 or close to it.

If there are no sellers until $1.25 then you'll buy at $1.25 and that will be the current market price until a seller comes in lower or
a buyer is forced to by at a higher price if stock at that level isn't available.

 

[greggles]

its a hypothetical question lol

If price is established by the price that the last transaction took place above or bellow the current price, then the first question that would pop up is surely what i asked.

this is why im finding it confusing to understand. supply and demand are based on each price, there's more supply at higher prices and there is more demand at lower prices, but for it to effect price i would have thought volume of the trade would have something to do with it, other wise very small volumes would have the same affect and hence price could be easily manipulated by anyone and prices would fluctuate a lot more

The market price of a stock is simply the last price at which a buyer and seller agreed to transact.

A stock goes up when a buyer is prepared to pay more and does so. A stock goes down when a seller is prepared to sell for less and does so.

Why that happens is another story. Could be an announcement, economic news, or some change in the perception of the stock's value.

I think you may be over-complicating the issue a little.

 

[Joules MM1]

its a hypothetical question supply and demand are based on each price

total misconception - not each price, on a price

pluck ideas out of workability - one person buying from another, one person selling from or to another
one account can sell to several traders, one account can buy from several traders
buys and sells are matched (balanced) but the accounts are not (size matters)

there is not set construct to the next transaction

everything is by value or the perception, drive, desire, valuation measure, price reflects a "sense" of value, whether too expensive (in a lay way) or too cheap (how cheap is cheap?), or cheap enough (by subjective measure), or never available again (not true)

price is a barometer of future value, an expression of expectation, it cannot be set by numbers rather the acceptance or rejection that the current price level or zone means something to someone who is keen-to, needs-to, wants-to get in or get out

price does not make someone take an action

 

[tech/a]

price does not make someone take an action

To a point.
If I saw something at way below my perceived fair price Id certainly look at it.

I know what your getting at a buy or sell at a price higher or lower in the Market depth in itself does not
trigger an action. Only at the coal face.

 

[barney]

sorry i meant looking at the "completed" buy/sell orders.

Ok gotcha now.

Buy buyers exceeding sellers at any given price range do you mean in a case where the buyers are willing to buy above the current price or vise versa?

Essentially yes ….. Again however, if you are looking at screen market depth, you may well see either lots more of either Buyers or Sellers "waiting" for their orders to be filled at various levels.

As a few may have already mentioned …… If for example you place a buy order at a much higher price than the last market filled order, it will most likely get filled close to the current market price depending on the amount you buy relative to how many shares are available

Most Stocks have plenty of Volume available at small increments so even if you offer $5 for a $2 stock, unless you are buying up big enough to soak up all the available Supply through multiple price levels, you will still only move the price a little, if at all.

On my exchange you can see all completed orders with time date amount, weather it was a buy or sell order etc

I understand ….

DO you mean limit order vs instant order at market price? everything im talking about is based on what im seeing on my exchange of executed orders

The only orders that are going to "change" the current price are orders which cross the spread (buyers pay more than the current offered market price, or Sellers do the opposite) and still the amount of price movement is relative to the amount of orders available at the next and subsequent levels.


Now I could be wrong but I suspect you thinking this way re Price, because you are contemplating whether it can be manipulated higher or lower based on what price you submit your order at for outrageous gains …

ie. You buy at $1 …… then artificially bump the price way up by placing a small order at $5 … then sell into the new price level and become an instant squillionaire Unfortunately, that won't happen.

In saying that however, if you trade some random unknown Spec stocks with bugger all market depth ….. it is possible to move the price around substantially percentage wise …… but if you try and play that game, do so at your peril. Unless you are a big honcho with deep pockets, you will get burned.

Of course if you weren't contemplating the above, pretty much disregard everything I said