SHARETIPSINFO >> Articles Directory >>Newton's Laws of Stock Market Trading
If you are thinking the Sir Isaac Newton had something to do with stock trading, you are miserably wrong. At his time there was no such thing like stock market. But still we often hear the phrase – Newton’s laws of stock trading. This is nothing but a few principles of stock trading that have striking resemblance with the laws of motion deduced by Newton. Moreover these principles of stock trading are as universally true as the Newton’s law of motion. These laws of or principles of stock trading has transcended the time and space to become as profound as the Newton’s laws. Here we are discussing these principles of stock trading.
Rule No. 1 for stock trading – The stock that is not moving stays at rest and the stock that is moving at a trend keeps moving at that trend unless there is some external factor affects the situation. That means that when the price of a stock is moving upward or downward in the stock market, it keeps on following this trend. Likewise a stock that is stagnant at a position, it stays at that position. To change this situation it requires an external force to act. In case of stock trading this external force means some indicators or events that have the power to change the trend of the stock market. It may be some economical factor, some news, political event, trend in foreign exchange, or even the psychology of the market can change the ongoing trend of the stock.
From this rule you as a trader have to learn a few things. Firstly, you need to realize that if you want t profit from your trading decisions, you need to take decisions according to the prevailing market trend and the trend of movement of the specific stock that you are considering for investment. If you do not consider the trend of the stock while taking the trading decision you are most likely to make a wrong trading decision. As a stock trader, if you do not respect the trend of the stock market you surely taking a huge risk. The next thing that you need to learn from this rule is that there are certain factors that have the capacity to change the trend of the stock market. If you want to make it big at stock market you have to learn the technique of speculating the change in trend of the market. It is only possible when you are able to keep a close eye on the factors that can change the trend of the stock market. Once you can speculate the change in the stock market trends accurately you can take time trading decisions that are the key for success at the stock market.
Rule No. 2 for stock trading – The movement of the stock is directly proportional to the market consensus and in the change is in the same direction that of the agreement and the change is inversely proportional to the mass of the stock. The rule means that the up or down movement in a stock is initiated by the market consensus or market psychology. The movement of the stock can be determined by the number of agreement or trading volume of the stock.
Rule No. 3 for stock trading – The third law implies that for every buyer in stock market there is a seller in that market. That means that there is equal number of buyers and sellers for any specific stock trading. So it is not true that there can be more number of buyers than the sellers or vice versa for a particular stock at any given day. But of course there can be more demand for a stock on a given day. It is basically this demand and supply ratio that plays a direct role in determining the price of the stock.
As the Newton’s laws of physics are true for the motion of objects, these rules of stock trading are true for any stock at any point of time. As a stock trader it is essential for you to follow these rules while taking your trading decisions. If you can follow these rules while trading in stocks you can be rest assured of making good profit at the stock market.
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