Market Supply & Demand

Last week we discussed the significance of volume and how that can tell us a variety of things about market activity.  Now let’s discuss what actually makes the market move. Daily, there are articles and news stories telling us why the market is moving the direction it is.  While these do provide reasons for the market to move that’s not what actually causes the market to move.

It’s the action that people take by buying or selling investments that really moves the market.  We could have a million reasons for the market to move up or down but without action by investors, nothing happens.

It’s a matter of supply and demand

Every investment has a number of shares that are able to be traded on the market.  When more people are buying than selling shares of that investment that price rises.  When more people are selling than buying shares that investment’s price drops.

Just like other goods in our economy whether they be tangible like clothing or cars or intangible like a service, supply and demand are at work.

While the reasons make sense why the market may be experiencing a rise or decline, the action is important.  When we pair the actions with the amount of action experienced in a day we can begin to understand the attitude of investors on most days.  These actions across a wide spectrum of investments begin to explain much. These items also begin to explain if we should be concerned with current market activity or if the recent actions are from just a few investors.

Understanding some of these investing concepts can help you begin to hear the news of the day in light of other measures, causing less worry to you!

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