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Principles of Market Price Movements

A Stock is a Market

A market is a group of people assembled for the purpose of buying and selling items that are somehow related - e.g., a fish market, a diamond exchange. The fact that all the people in the group are there to trade the same sorts of items gives them something in common, and distinguishes them, to one degree or another, from members of other groups.

There are, of course, independents who drift into a group for a brief time and then leave again. But most of the people who have been in a given market for a while tend to develop something of a shared understanding of how that market works. For example, they tend to have many sources of information in common, even though their interpretation of that information may be quite different.

Through of their common interest and their dealings with each other (even though they may never meet face to face), the people who comprise a market have some level of social interaction. As such, the behavior of individuals in a market is influenced by three things: information, psychological factors, and sociological factors.

Since a market is a group of people trading similar things or even the same thing, the people who follow the same financial instrument also constitute a market. As such, an individual stock, option, future, commodity, or bond is a market in and of itself. Utility stocks, agricultural futures, and so on constitute markets for the same reason.

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