What Moves the Market?
If you’re just getting started in trading, one of the most important questions you can ask is:
Why does the market move?
What actually makes a stock go up or down?
The simple answer?
Supply and demand.
That’s it. Just like with anything else in the world, whether it’s sneakers, real estate, or rare Pokémon cards, price is driven by the balance between how many people want to buy (demand) and how many people want to sell (supply).
If more people want to buy a stock than sell it, the price goes up.
If more people want to sell than buy, the price goes down.
But now you might be wondering…
What Affects Supply and Demand?
Supply and demand don’t just appear out of thin air. They’re driven by real-world factors that influence how investors and traders behave.
Let’s break those down.
1. Company News
News has the power to shift demand in a heartbeat.
Let’s say a company announces it’s being sued for fraud.
That could scare investors. The demand for that stock drops, and sellers rush to get out. More supply, less demand = falling prices.
Now flip the script.
Imagine that same company announces a new partnership with Amazon. Suddenly, more people are excited to buy the stock. Demand spikes. The price starts climbing.
Company news changes how people feel, and that changes how they trade.
2. Company Fundamentals
Fundamentals are things like revenue, profits, and growth.
When a company is consistently growing, making money, and expanding its business, more people want a piece of it. That means rising demand and rising prices.
If the fundamentals are weak, fewer buyers show up. Supply takes over, and prices fall.
Fundamentals don’t always affect the stock immediately. But over time, they’re a major factor in shaping demand.
3. Investor Sentiment
This is all about how traders and investors feel about a company.
If people believe in the company, trust the leadership, and feel confident about the future, demand increases.
If investors are skeptical, nervous, or bearish, demand drops even if the fundamentals look fine on paper.
Take Amazon in the early 2000s.
At the time, it wasn’t making money, and many people didn’t believe in the business model.
Even though it eventually became one of the biggest companies in the world, at that moment, the negative sentiment led to a weak stock price.
As traders, we’re focused on that short-term sentiment because it’s what drives market behavior right now.
4. Economic Events
Even if a company is doing great, outside events can shift everything.
Imagine the economy suddenly enters a recession. Or a war breaks out. Or inflation starts spiking.
Even companies with good news and strong fundamentals might see their stock prices fall, not because they did anything wrong, but because overall market demand is collapsing.
Fear spreads fast. And when fear takes over, buyers disappear.
Less demand = lower prices, even for strong stocks.
So What Really Moves the Market?
It’s not just chart patterns. It’s not just indicators.
At the core, it’s always supply and demand.
And that supply and demand is influenced by:
- Company news
- Business fundamentals
- Investor sentiment
- Broader economic events
Patterns and indicators can still be helpful, but they only work when they align with what’s really driving the market. You can’t rely on a double bottom pattern if a major news event is sending demand into freefall.
The key is to understand the big picture first. Ask:
- Why might this stock be going up?
- Why might demand be rising or falling?
Once you understand the reason behind the move, you can look at price action and patterns to time your trades.
But before we dive into that, there’s one more concept you need to understand first.
Bid, Ask, and Spread
What Do They Mean?
Whenever you look at a price chart or a trading platform, you might think there’s just one price for something like a stock or currency.
But in reality, there are two prices — one for buying, and one for selling.
These are called the bid and the ask.
Let’s break it down.
The Bid Price
The bid is the highest price that buyers are currently willing to pay.
If you’re trying to sell, the bid is what you’ll get.
Think of it like this:
You’re selling a used phone. Someone offers you $100. That’s their bid.
You can accept it, or hold off and wait for someone to offer more.
In trading, if you click “Sell” on your platform, your order will go through at the current bid price.
The Ask Price
The ask is the lowest price that sellers are willing to accept.
If you’re trying to buy, the ask is what you’ll pay.
Same example:
You’re now the buyer, and someone is selling their phone for $105. That’s their ask price.
If you click “Buy,” you’re agreeing to pay that price.
In trading, whenever you place a market buy order, you’ll get filled at the ask price.
So Why Are There Two Prices?
Because buyers and sellers don’t always agree on a single price.
Buyers want a deal. Sellers want a profit.
The gap between what buyers are offering and what sellers are asking is called the spread.
What Is the Spread?
The spread is the difference between the bid and the ask.
It’s usually small, but it matters.
Here’s a simple example:
- Bid = $99.90
- Ask = $100.00
- Spread = $0.10
If you buy at $100.00 and immediately sell, you’d only get $99.90 — you’d lose 10 cents right away.
That 10 cents is the cost of entering the trade. It goes to the broker or the person facilitating the transaction.
Why the Spread Matters
- It’s a cost every time you buy or sell.
- The smaller the spread, the less it eats into your profits.
- The larger the spread, the harder it is to break even.
If you’re trading something that doesn’t have a lot of buyers and sellers, spreads can be wider — which means more hidden costs.
Final Thoughts
- Bid = the price buyers are offering (you sell here)
- Ask = the price sellers want (you buy here)
- Spread = the difference between the two (your hidden cost)
Even though spreads are small, they add up — especially if you’re trading frequently. That’s why smart traders always pay attention to them.
