I was following NMDC on 09.08.21. From the opening itself I observed that at each price point at the buy side buy orders were significantly greater than the sell side. To me it seemed that demand was greater than supply but what I saw was price of NMDC falling continuously. Can someone explain this what seemed like a textbook style demand outstripping supply and instead of rising the price kept falling?
Demand and supply are crucial factors affecting the stock’s price, but more buyers don’t always mean more demand and vice versa. I’ll explain this with an example:
Suppose 10 sellers are selling 10,000 quantities whereas there are 100 buyers for 7000 quantities. Here buyers are 100 whereas sellers are 10, but the quantity offered is more than the quantity demanded.
Even if the quantities and buyers are more, this can’t be a sign that the price will go up. Buyers can be unwilling to pay more, and they can place the limit orders at a lower price than what the seller is willing to offer.
On the other hand, if the number of buyers and the quantity is significantly more and there’s an eagerness to buy the stock at market price or even higher, the stock price will increase. Usually, when a big player (FII’S DII’S, etc.) dumps a huge portion of the stock, the price goes down in a very short amount of time as sellers place market orders to sell the stock and vice versa. PUMP and DUMP, GLOOM and DOOM are classic examples of prices going up and down due to eagerness to buy/sell.
Also, anyone can place buy order at extremely low price (like 20% lower than market price), to create fake demand.
Unless you can see the entire order book, You cannot tell where these buy orders are placed.
Although buy quantities were bigger than sell quantities intent of the buyers also matter. In short there is willingness to buy but not the rush. am i correct? is there any tool to predict whether the buyers are in rush to buy or just waiting at their price points?
Thanks. in NMDC case at every price point buy quantity was greater than sell quantity. as explained by Mr. Himalay, the buyers were unwilling to meet the seller’s price. hence the seller had to come down to the buyer price i suppose.
I think marcos has explained it very clearly along with Himalay. Just because sellers volume outstrip buyers, it does not mean that the price will fall. It all demands on what price the buyer is willing to buy.
I have the intention to buy but at a price which is good for me, hence I will place a limit order and leave it. If the price strikes my desired price, I would have bought it and if not, there is always another day.
Hence the price depends on at what price the buyer is willing to buy irrespective of the demand. But based on the demand and supply, you could guage the sentiment of that stock.
HDFC life is showing similar pattern more sellers than buyers, but price is not tanking…there are many more