It is not always easy to fully understand how stock markets work. That is why it is sometimes difficult – and often even impossible – to understand why a stock’s price has risen or fallen. After all, prices are determined only when buyers and sellers agree on a transaction price. But that happens only when both believe they have made the right move. How can both believe they have made a good deal when only one can come out ahead?
Psychology is always a factor
“Stock market traders” know that their business is influenced less by facts than by expectations. Hopes, desires, beliefs, or fears are often more significant for stock market activity than economic growth or interest rate trends. These include, for example, macroeconomic sentiment as well as corporate reports or political changes – but above all, the sometimes completely different expectations and varying levels of individual risk tolerance among investors.
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