How do Stock Prices Change?
If you purchase stocks, there are two main ways you can make money from the purchase. First of all, you can be paid dividends. When a corporation makes a profit, they may decide to pay some of it as dividends to their shareholder such as $1 a year per share, but this isn't guaranteed.
Capital gains are another way to profit from stock purchases. You buy the stock at one price and at a future time, whether it's in an hour or in 20 years, you sell it for a higher price. After you take the difference, the amount you sold it for over the amount you paid is a capital gain.
When investors purchase stock, they are doing it in hopes of making capital gains. Those in retirement usually look for dividend paying stock because it is a stable source of income. Otherwise, dividends are just a bonus to the investment.
In order to make capital gains, the stock price has to go up. The stock price can go up or down. It varies from day to day. How can you know it will go up and how exactly does it change?
Do you remember the principle of supply and demand that you learned in your high school economics class? It is a basic term that explains the change in stock prices just as the change in prices of any other goods or services.
When the supply increases and the demand stays the same, the price will decrease. When the demand increases and the supply stays the same, the price increases. They vary inversely and the price adjusts along with them.
The price of a stock will go up if there are more people wanting to buy than willing to sell. The price of a stock will go down if there are more people wanting to sell than there are willing to buy.
Understand supply and demand and you can understand what to look for in a stock. You want a higher price after you buy, so you want more people wanting to buy later on.