After many time of loss and gain, I finally get the hard facts. As in any merchandise, the rules of supply and demand always apply! When demand is high, and supply is low, so will the price of the merchandise. When surplus supply, and demand is low, so will be the price. The same principle apply to stock price movement. There are always Buyer and seller in any trade, and the brokerage work as the middle man to transfer the shares between buyer and seller. So what make the buyer buy what they buy, and seller sell what they sell. There is always objective view of each party. For buyers, they are thinking getting a good deal from the stock, and believe big movement is ahead. Sellers are thinking the stock is not worthy as before, sold it for a profit or cut the loss.
In my opinion, there are only two forces that control the Up And Down of a stock movement. They are Greed and Fear!
For Example, when a good earning come out, plus optimum outlook of the upcoming year. Everybody want a piece of the stock, that means demands are high, and supply is tight. That cause the gap up of the stocks depend on the market value of the stock, and the intensive of the demand. The psychological aspect is greed that drive up the price, no body want to left behind, and every one want a piece of it. Everyone rush in for the ride, that is why 90%~97% of the trader lose money consistently. You don’t want to ride the train when it’s already in hyper speed. What makes it go up, and eventually come down! Once the heat is over, what’s next? Profits taking, insider Cashing out. What is left are those poor crying investors want to hold on to their position, and wish it will come back up again in the next near future. Therefore, Never get too greedy! if you do, you will get burned soon or later…
Institutional holders are always know one step ahead before general investors. That explains the heavy trading volume after the market session is closed, which for average investors like me and you can not exit the position even if we want. We have to wait for the next morning after the institution players dump theirs. It is so obvious that when some experts recommending on certain stock, and up grade their rating or price target, and yet the price of the stock still plunged. In my opinion, the institutional holder unloading their shares, and at same time, try to calm the public hold on to their position while they get out of the position. I personally enjoy buying puts on the stock that is on the way going down, especially own heavily by institutional players. I will put the stock in my observe list after it gap down on heavy volume. It might bounce back to the 30 day moving average pressure point, and then continue going downward in hyper speed. Most of the time, I got pretty amazing result, and take a nice big chunk of profits from the trade!
Therefore, as in any investments, Greater the rewards will be same as the potential Loss! If you have a better self-discipline on your psychological aspects of taming your greed and fear, you will be way better than majority of other investors.
- My name is Ryan C. I've been trading stocks, and options for sometimes. I personally operates a Chinese Food Restaurant in Los Angeles. One of my passion is making residual income from trading, and currently heading to the right direction. On this blog, I am just sharing my thoughts, and my personal trading experience while I have time. The course that I recommend onsite because I benefits from it, and hope it will be beneficial to you as well. Happy Trading!!!