Every price movement in the market has a reason — even when it appears random.
Prices do not move because of charts or indicators.
They move because of human decisions made by millions of participants reacting to information, expectations, and emotions.
Understanding why prices move is the foundation of all technical analysis.
The Core Driver: Demand and Supply
At the most basic level, price movement is governed by demand and supply.
- More buyers than sellers → price moves up
- More sellers than buyers → price moves down
- Balanced buyers and sellers → price moves sideways
Every candle, bar, or line on a chart is a visual representation of this balance.
📌 Even advanced market structures eventually reduce to this simple equation.
Who Creates Demand and Supply?
Demand and supply come from market participants, not from charts.
Key participants include:
- Retail investors and traders
- Institutional investors (mutual funds, FIIs, DIIs, hedge funds)
- Algorithmic and high-frequency traders
- Market makers
Each group operates with different objectives, timeframes, and information, which creates continuous price movement.
📌 Important insight:
Retail traders do not move markets alone — institutions create trends.
Key Factors That Move Prices
Price movement is usually the result of multiple forces acting together.
1️⃣ News and Events
Prices react to:
- Earnings results
- Economic data (inflation, interest rates, GDP)
- Policy decisions and regulations
- Global events and crises
📌 Short-term prices often move before news becomes public due to expectations.
2️⃣ Expectations vs Reality
Markets move not on news alone, but on:
Whether the outcome meets, beats, or disappoints expectations
Example:
- Good results but lower-than-expected → price may fall
- Bad results but better-than-expected → price may rise
📌 Advanced understanding:
Markets price the future, not the present.
3️⃣ Institutional Positioning
Large institutions:
- Build positions over time
- Cannot buy or sell instantly
- Leave footprints through volume and price structure
This creates:
- Trends
- Consolidation phases
- Breakouts and breakdowns
📌 Technical analysis often focuses on identifying institutional activity zones.
4️⃣ Market Sentiment and Emotions
Emotions play a powerful role in price movement:
- Fear → sharp selling
- Greed → rapid buying
- Uncertainty → sideways movement
- Confidence → sustained trends
Charts visually reflect these emotional cycles.
📌 Markets move faster on fear than on optimism.
Why Prices Trend Instead of Moving Randomly
Prices tend to move in trends because:
- Institutions build positions gradually
- Human behavior is repetitive
- Momentum attracts more participation
Once a trend begins:
- Buyers gain confidence in uptrends
- Sellers dominate in downtrends
📌 Trends persist until new information or imbalance appears.
Volatility: The Speed of Price Movement
Volatility refers to how fast and how much prices move.
- High volatility → large, fast price swings
- Low volatility → slow, tight price movement
Volatility increases during:
- News events
- Market uncertainty
- Breakouts from ranges
📌 Volatility is not risk by itself — unmanaged volatility is risk.
The Role of Liquidity
Liquidity determines how easily assets can be bought or sold.
- High liquidity → smoother price movement
- Low liquidity → sudden spikes and gaps
📌 Beginners should avoid low-liquidity stocks due to unpredictable behavior.
Common Beginner Misunderstanding
❌ “Indicators make prices move”
✔ Prices move first — indicators react later
Indicators interpret movement, they do not create it.
Price Movement Across Timeframes
Price behavior changes depending on timeframe:
- Short-term → noise, news reactions, emotions
- Medium-term → trends and consolidations
- Long-term → economic and business cycles
📌 The same stock can be bullish on one timeframe and bearish on another.
Key Takeaways from Lesson 2
- Prices move due to demand and supply imbalance
- Market participants drive price movement
- News, expectations, and emotions influence prices
- Trends exist due to institutional behavior
- Volatility reflects uncertainty and momentum
- Indicators respond to price — not the other way around
What’s Next?
Now that you understand why prices move, the next step is to learn how price movement is displayed on charts.
👉 Proceed to Lesson 3 – Types of Stock Charts
👈 Go Back to Technical Analysis Basics