For beginners, the task of learning about stocks and stock market movements is quite a handful. However, one only has to understand three important factors that drive these movements and influence the direction of such.
In this article, we will tackle the three most important general factors that drive stocks and the stock market. If you’re planning on becoming an excellent and profitable trader or investor, you need to read this article and make sure you remember these items: technicals, fundamentals, and practical factors.
In order to have a good grasp of the technical side of what makes stocks and stock market move, you first need to learn how to read a stock chart. There are specific price levels where “technically” on a chart you can see that a stock or the whole stock market is at overbought or oversold levels.
What takes place in these levels appears to be a self-fulfilling prediction since you have thousands of traders keeping close tabs on the same pattern.
When the stock or the stock market closes in on its resistance level, you are going to witness traders beginning to sell their positions and lock in their gains and most likely they’re playing it safe. As the stock market commences the selloff, it will eventually reach a point where too many trader overreacted, triggering another bargain. And this level is what we call the support.
You will see buyers come back and snatch up the stock or push the overall market back to the top. They key idea is to know where the technical levels are so you can be on the right side of the trade. In other words, you need to recognize them before they happen.
This part comes from fundamental data, which could be earnings report, cash flow, debt-to-equity ratio, sales movement quarter-over-quarter and year-over-year, et cetera.
When the stock appears to be fundamentally doing well, people will generally bet their money on that stock since it is considered safe. Generally, a company with a strong fundamental side based on the financials should do well into the reasonably foreseeable future.
A trader who has an eye for fundamentals searches for the cash flow and looks at its value. On the other hand, when there appears to be a breakdown in fundamentals such as a decline in sales, a rise in the cost of materials, et cetera, traders and investors start ditch the stock to search for better companies or places to pour their hard-earned money.
The two aspects above may appear to be the rock star of the stock market aspects, but the practical aspects also play a major role in stock and stock market movements.
The practical aspects may be events like presidential election year, which can move the market since the thoughts, plans, and ideals of the new leader can dramatically affect and change the landscape of the whole economy and other areas.
Other practical events could also include hurricanes, natural disasters, and other huge events that can disrupt supply and demand.