February 11, 2012 11:52 am
How a stock price moves? I know its just because of demand and supply. But what decides that today some stock went x% up or another stock went down y%.. how this is calculated?
Not sure if you would have heard about the term ‘Perfect Competition’ in Economics. Stock market is an example of perfect competition. Prices of stocks are influenced by demand and supply. What ever was mentioned in the comments above influence either the demand or supply of the stocks. If Demand is more than supply the share prices would move up and vice versa.
Dear Rajan, If yesterday the closing price of an stock was 100 Rs. & today’s price is 110 Rs. it’s 10% up, for today’s 95 Rs. price it’s 5% down.
This is what you are asking for.
%age increase or decrease is always for a past reference price. it may be 1 day old or 1 week or 1 month or 1Y or even beyond.
% is calculated based on where the price ends. It is not the other way round!
Hey. Thanks all but i dont want to know in which direction a stock price would move but what i want to know is that how they calculated the up or down in price of a stock. how that % is calculated..?
Well said Ramesh. Stock prices are random walk down Dalal street.
Actually the move in stocks is really based on institutional selling and buying. If someone wants to take a HUGE position they will do so over days/months. Selling happens the same way because bulk buying/bulk selling will push the stock prices in both directions aggressively. Again ‘mostly’ stocks move in herds, sectors specifically. Example: Infosys gives good results => Most IT stocks go up etc.
So there is no way to know what the stock will do on a given day or the next day but the theory of investing in stocks is based on the fact that the permanent direction of the stock market is biased upwards – just that it will sway in a price range/band for years/even decades.
Most importantly if someone sells a stock tip service that they can predict stock prices just laugh off and walk away.
No one knows.
Smart people know that they do not know the unknowable.
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