Learning How to Identify Changes in Stocks

What does a stock market look like? A massive auction of buying and selling traders going crazy.

Think of the feeling of bidding on an expensive piece of art like Monet. The bidding keeps getting higher and then the painting is sold to the highest bidder.

The fact that more people were bidding for that particular item which was in demand drove its price up. However, this is just a simple example and in the same way this is also one of the factors that can change a stock's price and lead to better stock market prediction.

Out of all this pandemonium, how can we predict changes in stock prices? There is no single answer to this question and there are a number of factors that drive the prices of stocks up and down.

These are mostly demand and supply, inflation, national interest rates, war and terrorism, changes in government policies, company earnings, international and domestic events (like the recent Iraq War), energy and oil prices, etc.

Coming back to the point, by observing these above indicators, we can safely assess the performance of stocks. Additionally, some analysts suggest that by observing stock market trends, stock market prediction can be much easier.

Historical or statistical data about the performance of a particular stock can provide us with a better measure of how it will behave over time. One of the most dangerous things to watch out for is a spike whether these are positive or negative, in simple terms, whether the stock will sharply appreciate or take a dive. These are highly unpredictable and can be caused by say, over confident prospects about future contracts held by a company that can give a false impression about future financial earnings.

Spikes in energy and oil prices ultimately end up affecting prices of commodities and this effect leaks on to stock prices as well. For example, if energy and oil prices go up then transportation and logistics prices increase as well. This can lead to inflation and to curb it, the government may raise national interest rates. Hikes in interest rates directly affect stock prices since these appreciate or move with such rates as federal authorities regulate them.

What about human factors? Is it possible that things like greed and motivation can play a role? Say for example, you own 5,000 shares of a public company that you bought at a lower price and this represents a major share of a stock exchange. Now, since you hold these shares and have some influence over brokers, you may decide to sell these at a higher price by sending out speculation into the market that over the next few weeks, the company's performance will be far better.

Your broker then in accordance with your instructions, begins to quote a higher price for this stock based on the "new knowledge of the company's performance". Now, by some stroke of luck, it sells out for a higher price than you initially paid within a few hours resulting in much higher profits for yourself and your broker.