SHARETIPSINFO >> Articles Directory >>The Psychology of the Stock Market

 

The price of any stock is primarily dependent on the demand of the stock in the market. Among all the factors that are responsible for the movement of the stock price at the stock market, the psychology of the investors is also a crucial one. It is always vital what major portion of the buyers think about one particular stock. The psychology of the investors is therefore considered to be the psychology of the stock market and it is a determining force behind the overall trend in the market. In fact it is the other way round as well. That means the trend of the stock market also determines the psychology of the stock market.

How demand of stock is controlled by stock market psychology?

It is a proven fact that every stock and the overall trend of the stock market moves up and down in a cyclic manner over a period of time. When the market is rising and the buyers’ confidence is high and most of the buyers have an optimistic attitude, the demand for the stocks remains high at the market. Higher demand of the stock means there is more number of buyers in the market than the number of sellers that raises the demand of the stocks in the market. This situation in the market is termed as the bull market. It is the bullish trend of the market and the greater demand of the stocks that take the price of the stocks higher. This trend of the market stats for a considerable period of time and when the price of the stocks reach at the optimum level and the demand of the stocks somehow become saturated then there is little movement of the price of the stocks.

It is this juncture of time when portion of the buyers sell the stocks in their holding to get the profit. Eventually the demand for the stocks fall and so is the price of the stocks as there are more number of sellers than the number of buyers at that time. As the price of the stocks start to fall there is a panic among the investors and more number of investors start to sell of the stocks in their holding to save their investment. This is the bearish trend in the market that is the reverse of the bullish phase.

As it can be seen in both the cases, that prevalent psychology of the stock market somehow plays a pivotal role in determining the overall trend of stock market. Quite often it is seen at the stock market that stock market psychology does not co-relate with the other economic and financial factors that control the stock prices. Suppose when the market is rising the buyers expect it to rise further while the economic indicators project it otherwise. This is the time when market falls beyond expectations of the buyers and they incur huge loss at the stock market. This scenario is also seen on the reverse side as well. When the market is falling and the stock market psychology is pessimistic about the future of the market, investors do not get the courage to invest in the stocks. But when the market shows reverse sign they come to market and invest in the stocks, but by that time they have already missed some golden opportunity for buying stocks at lower price.

Make smart investments – if you want to make it big at stock market – you have to act rather than react to the market trends. Confused? Let us explain. When market is already started to show a definitive trend, whether bullish or bearish, it is possibly already late to take your investment decisions. So if you want to win it big at the stock market, you have to learn to read the market well so that you can predict the market trend well before it actually takes place. The only way to do that is to have close watch on the everyday movement of the stock market and technically analyze the price movements and trading volume. Along with that you have to watch the major global stock markets as well, simply because the global trends are often seen to influence the Indian stock markets. If you can master this art nothing can spoil your chance of making great profit at the stock market.

 

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