By Vishweshwar HS, www.showmytrade.com
Demand and Supply is a significant factor in moving stock direction upside, downside, or sideways — A variety of factors affect the stock price at any given point. Knowing the movement of the stocks helps us to choose correctly, position ourselves upside, downside, or not to trade in a sideways trend.
Let’s take one example, Why Infosys stock moves every day? Let’s say quarterly results announced results, either positive or negative. The stock should move one or two days based on positive (stocks move up) or negative news (stocks move down). But why do stocks move every minute, hour, day, week, and so on?
The main reasons for movement are the following factors affecting the stock or perception about that stock bullish, bearish, or sideways. The three broad parameters are:
1. Company Based News: Any news which is affecting a particular company. Ex: Quarterly Result, New Product Launch, Sales or volume growth, Dividend, Bonus, Split, Joint Venture, enter into new geography, etc.,
2. Sector Based News: Any news which affects the whole industry or sector. Ex: RBI Rate announcement (increase/decrease) change the most of bank stocks’ price, Tax/duty cut by Govt Policy of particular sector, Seasonality effect, etc.,
3. Market-Based News: Any news which affects the whole business. Ex: General election, war/tension, crude oil, Budget, Huge currency movement, New Industrial policy, etc.
Further, the stocks that can trend bullish, bearish, or sideways can classify the following three essential factors:
1. Fundamental Factors: The information which affects the company’s profitability, reduce earnings, or any other fundamental reasons. Entering new geography, launching new product or service, etc.,
Example: The auto sector’s stock price is coming down because of the challenges faced by the auto sector.
2. Technical Factors: Technical reasons such as — Short-covering (those who sold their stocks are now buying back because the trend changed soon to uptrend). Long unwinding (those who bought the stock are booking the profit, expecting the stock may not move much upside). Overbought or Oversold conditions (extreme buy or sell which indicates now the market is going to reverse direction) etc.
3. Sentimental Factors: The stock market discounts all information, which is likely to happen in the near future (not always and not necessarily). Any positive or negative news about the company, economy, or sector, will affect the share price considerably. The maximum index movement happens when the current old regime is changing, and the new Government is forming (expecting a new Government with positive policy change). Risk-on and Risk-off trade (news affect higher risk where fund manager sell equity and reduced risk perception where fund manager buy more stocks)
One of the other information is flowing – Fundamental, Technical, or Sentimental. It affects the price of the stocks significantly more than average days.
Trading in the stock market is both art and science. It is essential to learn and recognize the factor affecting the stock market. Further analysis of the stock made with available data for having better risk to reward trade. Following the news flow and its influence on the stock helps in an excellent deal for successful trading.
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