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Stock market have cycles that go up, peak, go down, and the bottom. When one cycle is finished, the next begins and this is only the problem that most investors and traders either fail to recognize the markets are cyclical or forget to expect the end of the current market phase, ready to earn more when the price of their stock is up and show regression, withdrawal, autism, repression to overcome their frustration when they face loss in the stock market.
It is therefore essential to understand the stock market cycles if you want to maximize investment or trading returns. Economic fundamentals of the companies have direct influence on the stock market prices:
If revenues and profits are on a steep upward trend with no indication of leveling off, you can expect to see the stock price rise as investors bid up this attractive company.
On the other hand, if the profit picture is flat or, worse, declining with no change in sight, look for investors to abandon the stock and the price to fall.
In order to have the much better understanding try to analyse the market economy i.e. the prices of most goods are determined by supply and demand. This is true of stock prices as well. If you want to know what causes stock prices to rise or fall, you have to understand the factors that shift the supply & demand curves in the stock market.
FACTORS EFFECTING DEMAND AND SUPPLY OF A COMPANY`S STOCKS:
- The current prices of the stock
- Current earnings/profits/dividends
- Expected future earning.
- Expected future stock price.
- The price of substitutes like bonds or other stocks
Every day the market opens, it’s a clean slate. Investors must meet no set prices. Stocks that the day before were flying high may not get off the ground today. The ugly duckling turns into a cash cow (how’s that for mixing metaphors).
Smart investors spot the subtle changes before they become price-movers and take the appropriate action, as you develop you investing skills, you will learn strategies and techniques to help you establish a fair price for stocks and either get that price or find another stock to buy that meets you investing criteria.
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