How Stock Prices are set?

Stock prices are a function of supply and demand. Other influences such as earnings, the economy and so on may affect the desirability of owning (or selling) a stock.
If a company reports surprisingly low earnings, demand for the stock may wither. As it does, the balance between buyers and sellers is changed.
Buyers will demand a discount off the existing price and many motivated sellers will accommodate. More sellers than buyers means there is more supply than demand, so the price falls. 

Prices Drop

• At some point, the price drops to a level buyers find it attractive or some other factor changes the dynamic. As buyers move into the market, demand grows faster than supply and the price goes up.

• Some times supply and demand find a balance, which is a price that buyers accept and sellers accommodate. When supply and demand are roughly equal, prices will bounce up and down, but in a narrow price range.It is possible for a stock to stay in this range for days or months, before something else disrupts the supply/demand balance.

• There is a delicate inter-relation ship with supply and demand and a stock’s price. If demand for a stock exceeds the supply, its price will rise. However, it will only rise to point where buyers suspect demand is waning. At that point, holders of the stock will sell. Some may have ridden the price up and believe a reversal is coming so they take their profits and sell.

• As more owners sell (for whatever reason), the price begins to fall, since there is now more supply than demand. To entice a buyer, the holder of the stock lowers the price. The same dynamic works on the other side, but in reverse. As the price falls, it will reach a level that buyers find attractive. As buyers acquire shares, the stock’s price rises since sellers must be enticed to let go of their shares.

• This dynamic of supply and demand is the most important truth investors need to learn about stock prices. While investors may want to assign a value to a stock, it is the market and the give and take between supply and demand that sets the price. 

Every day is a new day.

Every day the market opens, it’s a clean slate. Investors must meet no set prices. Stocks that the day before were flying high may not get off the ground today. The ugly duckling turns into a cash cow (how’s that for mixing metaphors). The point is a share of stock is worth what someone else is willing to pay for it. That is the heart of investing. 

Fair Price 

Successful investors decide what a fair price for a particular stock is and that’s where they buy. They don’t let market hysteria goad them into overpaying. Likewise, if nothing has fundamentally changed with the company, but the stock is dropping along with the market, successful investors will sit tight and not be frightened off a good price. As you develop you investing skills, you will learn strategies and techniques to help you establish a fair price for stocks and either get that price or find another stock to buy that meets you investing criteria.