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Tags: finance, stocks, stock prices
 If you want to invest in stocks, you must first understand how the stock market works. There’s really big money waiting for you by trading in stocks. However, you must be aware on how to gain big profits. Generally, making profits in stocks is attained by selling the stocks at a higher price than what you actually acquired it.
The very important thing every investor must know is what drives stock price to change. Stock market prices fluctuate a lot. Even in a matter of a second, it can either go up or down. Stock prices are characterized by volatility. Volatility represents the probability of a stock price to change.
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So, what really influences prices to be volatile? There are lots of factors which can affect the movement of stock price. You must know these things before investing your money in the stock market. First, information plays a vital role in the movement of prices. The latest news or information available to the public can either drastically makes prices go up or down.
The information is basically economic as well as financial information. It will be used in determining the value of stocks at a certain price level. Stock prices volatility will rise if the latest information is relevant. How the public or the market will will react on the released information will surely influence prices.
It will also depend on the market interpretation. If the market thinks that the information will have a positive effect on the company’s earnings, prices can go up. The rule of supply and demand is another factor to be considered. Stocks traded in smaller quantities are prone to fluctuations. Small volumes of shares are typically less liquid compared to large volume shares.
It is advantageous to have popular stocks because the shareholders can demand a higher price for their commodity. Third, economy has a say in the market. Lots of investment companies place importance on the industry or the sector’s actions as a factor affecting prices. Shares of stocks can be categorized according to the industry or sector where it belongs.
If a share has suddenly gone down, alike shares will surely be affected because of association. The sector will suffer a lot due to the negative outlook of the particular shares of stocks. Lastly, there is uncertainty in the trade. The movement of stock prices is unpredictable. You can never tell whether it will go up, down or remain unchanged.
After knowing the factors, you must also know how to measure volatility. Basically, there are two methods- historical and implied. Historical volatility is calculated by examining the past changes in the price. Usually, it uses prices for the past thirty days. It can use different time periods just as long as prices are in the 30-day period.
On the other hand, implied volatility can be measured if the prices are already known. Volatility can be implied directly from the price. If the price is higher, it shows a higher chance that the price will change thus a higher volatility ca be inferred. Stocks with higher volatility tend to move than shares with lower volatility.
That’s why; choose stocks which are highly volatile. Trading in stock market is never an easy thing; you must be knowledgeable in order to know the right strategies to do to earn bigger profits.
About the author
The author of this article Rick Goldfeller is a successful underground Financial Analyst who has been advising and coaching individuals for many years. Rick recently published a book on how to manage your money and attract Wealth and Financial Freedom. More info on his Finance Planning course is available HERE.
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