Price Movement

This posting is not to encourage readers to trade. For most people, it has been proven that constant trading is detrimental to their investment return. However, as a retail investor, we should have a general knowledge of the signals that the price movement is indicating to us.

The price movement of a stock is dependent on the demand and supply of the stock, which in turn is influenced by the buyers’ buying interest and the sellers’ selling interest. Every buyer or seller has different purposes when entering into a trade. The followings are general “rules”, which provide us with some hints on whether the stock price will probably go up or down. One should not view these “rules” as a foolproof method that will hold true all the time. There are certain occasions that market manipulators might be using these “rules” to mislead the general public.

Rule 1: Buyers are showing small orders and sellers are showing big orders. However, the stock prices are holding quite well – buy signal.
A lot of selling orders with only a few buying orders on the stock may imply that the stock price would come down. However, if the stock prices are holding quite well, it could mean there are some net buyers accumulating the stock. The reason for this is buyers may refuse to show their buying orders to attract sellers to sell at the buyers’ buying price. Showing high buying orders may delay selling interest, as sellers will wait for the buyers to buy at their selling price. Hence, it is a “buy” signal if we notice the above rule on any stock.

Rule 2: The overall market is weak but your stock price is moving against the overall market trend – buy signal.
In a down market, if a stock that you own is inching up steadily despite the overall weak stock market sentiment, this may imply that there are some net buyers on this stock. This is viewed as a “buy” signal where buyers are eagerly accumulating the stock in spite of the weak market. In most instances, the stock price will move higher the moment the overall market sentiment recovers.

Rule 3: Stocks carry a lot of bad news and are trading at high volume but stock price remains stable – buy signal.
Sometimes a certain stock is facing huge bad news but the stock price is holding on quite well. Normally, it may imply that buyers are not worried about the market concerns on this stock. The current stock price may have discounted all the bad news.