Recent headlines:

One of the Ways the Stock Market Works.

Posted by strudy on Sep 23rd, 2008

I have come to the conclusion that the market is (dare I say) generally being manipulated/influenced by firstly the large institutions, Secondly by full time professional traders and day traders and the short sellers.

The general public and the “Mum and Dad” investors are the last to know what is actually happening and invariably the ones that lose out in the long run.

The advantage the Institutions have is the “Millions” of dollars that they have available to use at any given time. This is usually obtained from the public in the first place, in the form of Insurance, Superannuation and Managed Funds etc. Which we, (the general public) all contribute to on a daily basis.

The large advantage they have is the enormous amount of shares they are able to purchase or sell at any given time.

What occurs is that even a small movement in share price means big profits for them, because of the volume/turnover of shares which occurs whenever a share transaction takes place.

Now Volume is the “Fuel” driving the market. An uptrend in share price to survive and to continue must be nourished by new buyers who are being fed by cautious, seemingly reluctant sellers.

Consistent volume is very important, if there is to be any change in the existing trend. There must be a surge of buyers or sellers capable of changing the current share price.

Remember for every “Seller” there has to be a “Buyer” and vice versa.

The seller thinks or knows the share price is going down and the buyer thinks the opposite.

Now too much selling will invariably force the price downwards as will too much buying forces the share price upwards. This is the law of “supply and demand”.

This “Law” is taken advantage of by the large Institutions who are well aware of what happens when they buy or sell huge volumes of stock.

Some Reasons Why Share Prices Go Upwards.

It’s always a good idea to look at stocks that have jumped in price to see what clues where there beforehand. By gaining a greater understanding of what happened before stocks jump in price, it can give you a better chance of being on board some of the next ones.

When the share price increases, it means that the buyers (on average) want to buy larger parcels of shares. When people buy large parcels of shares it generally means that they are very confident in the stock and its future prospects and are prepared to pay higher prices.

A large increase in Smart Money (Traders in the know) and Buyer Demand can occur before a large jump in price happens. This information lets you know that other people are very interested in this stock and are prepared to spend big money on it. This can be another good clue.

When you see large spikes in Buyer Demand when the price is starting to rise upwards it often indicates that the stock is set for a much longer bull run. The rushes for stock are caused from either news or rumors and (as long as there is no bad news) this activity will then start attracting attention from other less informed traders.

Another great clue is to be found when Directors are buying there own stock. It means that they must have confidence in their own company to invest money in it. You can find out when Directors are buying and selling by checking the ASX company announcements on a daily basis.

Companies are on strict instructions to notify the ASX when ever a Director buys or sell shares in his company. Directors buying are usually based on a profit motive.

Strudy is a keen successful share trader on the Australian Stock Market Visit his weblogs

for more free articles and useful information at both http://www.asxnewbie.com and http://www.aussiewealthreview.com