What causes a security price movement?

[novicetrader69]

I have read something about what causes price moves but still I don't fully get it.

Let me first tell you what I know or understand and then what I'm still not completely getting. And let's reason on stocks that are at least in my head a simpler security type.

• In order for someone to be able to buy a given quantity of a stock there must be one or more sellers offering that quantity and, vice versa, to be able to sell there must be one or more interested buyers and clearly there must be agreement over the trade price.
• I read somewhere that liquidity level or number of buyers (or depth of market for that security) impacts price movement. I suppose that scarcity of sellers also influences price moves.
• I believe I also read that size of trades (quantity exchanged in a single trade or requested) influences price movement.
• It is not clear to me if number of buyers and sellers and quantities are variables in an equation only for closed trades or if pending requests/offers are also playing some role.

In the end, I have this vague idea that when a security price is decreasing there is a lot of selling occurring but clearly a lot of selling occurring also means a lot of buying occurring, so why should price anyway move? Clearly I also thing of an increasing price due to a lot of buy or request occurring but again a lot of buying means a lot of selling so why should price move?

And finally is time yet another variable in price movements? In other words is the increase/descrease of closed trades within a the time unit also playing some role in price movements?


Thanks,
nt

 

[trendmomentum]

Simple Economics 101. A change in the quantity demanded. Everything else is pure philosophical and simple speculation.

 

[novicetrader69]

Simple Economics 101. A change in the quantity demanded. Everything else is pure philosophical and simple speculation.

Would a single bid with a X quantity requested have the same effect of Y requests with the same X requested quantity?

Supply and closed trades play no role? Also things like trades closed above the current price don't move price?

nt

 

[themickey]

Simple Economics 101. A change in the quantity demanded. Everything else is pure philosophical and simple speculation.

This is prolly the correct answer.
Prices go up and down for numerous reasons, price may drop not because of huge selling, but because buyers are sitting on sidelines, and a small handful of sellers are dumping because of their emotions or any other of a hundred reasons.
Price movement can be from a leeming effect, once it moves, others just follow.
Price can move due to computer driven algos just following an algo command, not just placing one trade but numerous small trades banging away relentlessly.
Your question is not one with an answer which fits into a box I doubt.
Market depth on a screen is a waste of time imo, numerous trades are activated away from mkt depth screen, I honestly don't know why they bother with this, perhaps it's to give traders a false sense of control, a kind of placebo effect.

 

[Peter10]

In the end, I have this vague idea that when a security price is decreasing there is a lot of selling occurring but clearly a lot of selling occurring also means a lot of buying occurring, so why should price anyway move? Clearly I also thing of an increasing price due to a lot of buy or request occurring but again a lot of buying means a lot of selling so why should price move?

let me explain in a simple sentence,
if there are more selling than buying, the price move down because the sellers are lowering the price to try and get buyers.

 

[novicetrader69]

Price movement can be from a leeming effect, once it moves, others just follow.
Price can move due to computer driven algos just following an algo command, not just placing one trade but numerous small trades banging away relentlessly.

This is still selling, not human.-driven but still it causes selling. I suppose support and resistance levels are nothing else than buying/selling algo-driven...

Market depth on a screen is a waste of time imo, numerous trades are activated away from mkt depth screen, I honestly don't know why they bother with this, perhaps it's to give traders a false sense of control, a kind of placebo effect.

Ok, but then do these trades carried via different channels still contribute to traded quantities we see? Also, do these trades close on bids present in the book we small traders see or do these large players trade via a dedicated channel on a "parallel" market that still greatly influences the market we small players see?

btw, what are they or how do you call them? hedge funds, banks, market makers, institutions?

nt

 

[tommcginnis]

Price moves because Qs =/= Qd. (Exactly what Peter10 said.)

What causes an imbalance between Qs and Qd? Everything that you and theMickey have proffered.

FWIW, open financial markets are pretty great mechanisms, and have way-much in common with the farmers' market down the street, and if you have a question, and put it into the price of tomatoes at the farmers' market --
-- equilibrium
-- market clock running down
-- tomatoes becoming 'over-ripe'
-- tomato flavonoids found to cure cancer
-- "Food Fight!"
-- secret fertilizer that doubles tomato size+flavor
-- any other sort of factor: run that through the farmers' market scenario, and you can see what will happen to the price of tomatoes via the impact on the Q* traded.

The thing is: the same mechanics apply to financial markets. It *is* Econ101. (But both sides.)

 

[novicetrader69]

let me explain in a simple sentence,
if there are more selling than buying, the price move down because the sellers are lowering the price to try and get buyers.

There can't be more selling than buying.....you can't sell if no one buys, I suppose you mean more supply/ask than demand/bid. But then what does "more" mean? More buyers than sellers? More offered quantity than requested quantity?

You seem to hint at the fact that price moves because trades close at a price that is different (higher or lower) than the current security price but I suppose this is not necessarily the reason or the only reason.

nt

 

[smallfil]

Supply and Demand. Nothing more than that. When the corn harvest is bountiful, corn is cheap, when the harvest is lower due to bad weather, corn prices are higher. If there is a surge in buying in XYZ stock, XYZ stock goes higher because the buyers bid the prices higher and are willing to pay higher and higher prices. Conversely, if the sellers decide to sell suddenly and there is a surge of sellers, as more sellers are willing to sell at lower and lower prices, the price of XYZ goes lower and lower!

 

[Sprout]

Price moves because Qs =/= Qd. (Exactly what Peter10 said.)

What causes an imbalance between Qs and Qd? Everything that you and theMickey have proffered.

FWIW, open financial markets are pretty great mechanisms, and have way-much in common with the farmers' market down the street, and if you have a question, and put it into the price of tomatoes at the farmers' market --
-- equilibrium
-- market clock running down
-- tomatoes becoming 'over-ripe'
-- tomato flavonoids found to cure cancer
-- "Food Fight!"
-- secret fertilizer that doubles tomato size+flavor
-- any other sort of factor: run that through the farmers' market scenario, and you can see what will happen to the price of tomatoes via the impact on the Q* traded.

The thing is: the same mechanics apply to financial markets. It *is* Econ101. (But both sides.)

To add to Tom’s example, the hidden factor is whether the tomato farmer has a truckload of tomato’s (that you can’t see) that they want to unload NOW or not.

The farmer’s market analogy breaks down without adding a bunch of people in the middle between producer and consumer.

They in a sense become a large consumer buying from several tomato farmers and reducing each farmer’s premium. They turn around and appear as a single producer to smaller consumers and extract a premium for the ‘service’ for they are not direct tomato farmers.