You’ve probably heard the truism, “The market can stay irrational longer than you can stay solvent.” Markets by nature are subject to human opinion, more specifically an opinion on what might happen in the future – a good future means more buying, a not-so-good one leads to more selling.
When it comes to money, people make irrational decisions. A good company with good fundamentals can trade down with the market or get caught up in the bad perception at an industry level even when it may have a standout business model.
Price action is the flow of buy and sell orders represented by the price movements for that ticker. A company can have blow-out earnings and jump 10% after hours, then suddenly tank 15% the very next minute for no good reason. Price action is the pulse of the stock. Sometimes it can just lazily move throughout the day with little volume until one breaking story doubles the trade volume in a matter of minutes.
A stock with a very high average daily volume (tens of millions of shares) is a stock that has a lot of opinions from the market. These opinions impact price action. This chaos can cause a stock to move with no logic whatsoever and your 10, 100, or even 1000 shares is not going to change price movement in your favor.
This is why stop losses and other mechanisms to protect your basis (or minimize your losses) are critical when it comes to trading. New traders buy a stock and hope for the best – when the stock turns they just lose all their capital. Good traders know they can’t fight price action, and when the stock turns against them, they just need to take their minimal loss on the chin and move to the next trade.
Emotions and desperation lead people to believe they can influence price action, but unless you’re Warren Buffett, your trade is just along for the ride.