Understanding price movements

[Guest RedSwift]

Hello,

On the 20th of February, a firm released its 2018 full year results and the price surged 10%. I understood that this would typically be a result of investors seeing the positive results released, and demand for the share driving the price up, however, the screen shot below shows the trading volume as being similar to the days prior to and after the release. So if the trading volume is staying the same, what is driving the price up? 

[Caseynotes]

Hi @RedSwift,  Supply and demand are not the only drivers of price, in this case the simple answer is a change in perceived value.

There is agreement between buyers and sellers that the shares are now worth more than they were before the news release.

Neither supply and demand imbalance nor a change in perceived value will automatically cause an increase in volume of shares traded. In the case of S&D there is the implied initial lack of trading opportunity to do so which is why change in volume is often delayed. In the case of perceived value change the new status quo will not necessarily encourage new additional buyers and sellers to enter the market. 

 

[Guest RedSwift]

Hi @Caseynotes, thanks for the help again. Is the change in perceived value decided on by brokers?

[Caseynotes]

@RedSwift,  no, it's solely down to what people are willing to buy at and sell at, the broker is there to match the two together. If the broker can't find a match then there is no trade (and no addition to the volume figure).

[Guest RedSwift]

Ok thank you. I'm probably being obtuse here, sorry! But how do buyers/sellers signal what price they are willing to buy and sell at if not through their actions on the market?

[Caseynotes]

8 hours ago, RedSwift said:

Ok thank you. I'm probably being obtuse here, sorry! But how do buyers/sellers signal what price they are willing to buy and sell at if not through their actions on the market?

Good question, a chart is showing you footprints, where market movers have been and where they are headed. For a clue as to where they might next be willing to buy and sell you would instead look at the orderbook. This is why I stick to support and resistance, if you look at the orderbook you will note orders are clustered around significant levels, boundaries that have in the past been zones of contention. Support or resistance does not mean price can go no further, just that it likely to be challenged. Orders cluster because weight of numbers has a better chance of turning a market than buyers or sellers being spaced apart.

As a retail trader don't get involved in the actual battles, don't buy into resistance, don't sell into support. Wait for a winner to emerge and follow.