Reading Stock Market Movements

Stock market movements can be significant in both directions, and unfortunately there's no way to be sure of exactly why they're behaving in a particular way. That said, understanding the factors that play in to trading psychology and getting to understand the implications of particular external factors can lead to more consistent trading, and really is the Holy Grail of successful investment.

Stock price movements are affected by any number of things, ranging from goings on within the underlying business through to economic forecasts and even current affairs. As a starting point, it&'s key to understand that worldly goings on are intrinsically linked with the markets, and command significant sway over trading behaviour. Economic announcements, for example a rise in UK interest rates, could in theory drive up the price of shares in major mortgage lenders, if it is assumed this will benefit their bottom line. Current affairs also play in, as to the movements of ancillary markets - a weak pound, for example, will buoy the shares in international manufacturers listed on the London exchange.

The majority of price movements are dictated by the trading activities of investors much larger than yourself, with portfolios ranging into the billions. We're talking institutional investors - investment banks, hedge funds, insurance companies and the like. These are serious players on the markets, and how they respond to a particular event or announcement will go a long way to determining the price of any given share.

As a small trader, the advantage you have over these institutions is risk and dynamism. A pension fund that's playing with the life-savings of its clients is going to run a mile at the first sign of trouble, or pile on the exposure if they think something is moving in their favour - it's their primary function, and their clients would be incensed with any other approach.

As an individual investor, it's absolutely essential that you have or develop a solid grounding in economics, business and current affairs, and many professional traders have news tickers constantly running in addition to knowing ahead of time when particular relevant figures are likely to be released to the public. You need to be one step ahead of the game, and adopt a totally professional approach if you are serious about making a living as a trader, which involves knowing what's going to happen and when, and how that might impact market attitudes.

Nobody said it was easy, but with a little foresight and an ever-expanding wealth of knowledge on your side, you too can learn how to react to the factors that play in to pricing on a day to day basis to make more reasoned investing decisions and to determine the best point to both enter and exit your positions.