When and how much you spend on stocks might be a personal decision that one makes based on their personal financial goals but as an investor, it would be profitable to understand what moves the stock markets.
Being aware of common factors that move stock prices can help you make a percent or two extra in your trade.
Here are some factors that affect stock markets on an average day. Please note that the following is based on general market trends.
International Stock Markets
The stock markets in East (Tokyo Stock Exchange and Hong Kong Stock Exchange for example) open a few hours before Indian markets due to time difference. Similarly, the New York Stock Exchange opens after Asian markets have closed while the European markets open halfway between Indian market's working hours.
A trend in certain sectors or companies that are globalhave an affect on the sentiments of all markets. For example, if there has been a positive outlook on technology companies in the East, the same will affect the IT companies in other markets. Similarly if a multinational company's stocks are traded in multiple markets, its stocks will see the same moving trend across the globe.
You might have observed that experts often look at the status of Asian markets to predict how stocks of a certain industry will perform in India.
News on policy changes
Usually, any announcement on a change of trade policy affects the markets. This is both domestically and internationally. If there is a new tax policy against foreigner investors, they will relocate their funds to a market in a different economy to avoid losses.
Changes like interest rate, currency valuation are also very important factors. You should therefore make yourself aware of economic news around the world.
If there is a highly anticipated government policy to be released, it is best to be wait for the results than jump into conclusions beforehand.
The First hour
As a usual practice, expert stock traders buy or sell in the first hour after the market opens. It is typically the busiest hour in the morning trade, making markets highly volatile.
The reactions are based on all the news that came out between the time the market closed the previous day and the present day's opening of the market, which could include major economic events or political changes.
In a typical scenario, the volume of trade in the afternoon is low, as major news is out in the morning and the dust as settled. If this happens, the stocks could be found to be slightly cheaper around 1 in the afternoon than it would be in the morning.
Also the European stock markets open in the afternoon, making room for a possibility of movement in prices of certain stocks that could be affected from market behaviour in Europe.
A significant number of traders choose to sell their stocks on a Friday afternoon, a few hours before the market closes. This is because they prefer to liquidate some of their equities to avoid the risk that comes with holding positions over the weekend.
This is also be because the stocks are generally priced higher ahead of the weekend while Monday usually brings a dip in the prices. Especially if there is a three-day long weekend (a holiday on Monday) after a Friday due to a festival, the markets are optimistic and tend to rise.
There are different types of analysts. There are analysts who work for a certain investment institute, like mutual fund management for example. These focus on analyzing the stocks in the sectors of the customer's interest only.
While some others are hired to give their opinion to sell investments already bought and then there are independent analysts who are not employed by any specific firm or brokerage. Their views are usually unbiased.
Whether biased on unbiased, an important, well-known analyst's opinion can affect the sell/buy trends in the market. It is therefore good to be updated on current business reports on television and financial websites to understand how your investments could be affected.
Suppose, during the trading hours, a well-known analyst expresses a positive or negative opinion on the stocks of a company, it can affect not just the stock of that company but companies of similar nature and those associated with it. For example if the analyst has down-graded the stocks of an auto-mobile equipment making company, it is safe to assume that small players in the automobile industry will also experience the wave. It will also affect auto-mobile makers that buy their components from these companies.
Internet has changed the way people obtain news. A message is received faster and is also shared at a significantly faster rate through instant messaging applications on smart phones.
So if a financial article has a strong worded opinion on a certain company's stock or a certain sector, it could have a market moving affect in no time.