Lesson 5 of 31 · Zero to reading a chart

How Stock Prices Are Set: Nobody Decides

A price is the last trade - the last time two people agreed - and it moves because more people wanted in than out at that second, not because anybody decided.

There is a number on your screen. Eight dollars and fourteen cents. Who decided that?

Most people assume somebody does. The company. The exchange. Somebody in an office. Nobody does.

You know a share is one slice of a company. You know an exchange is where slices get bought and sold.

Here is what actually happens inside it.

Two queues. On one side, everybody who wants to buy. Each of them has a price in mind. The most they are willing to pay.

On the other side, everybody who wants to sell. Each with the least they are willing to accept.

Nothing happens while those two prices are apart.

Then somebody moves. A buyer agrees to pay what a seller is asking. Or a seller takes what a buyer is offering. They match. Shares change hands.

That match is a trade. And the price of that trade is the price.

That is all the price ever is. The last time two people agreed.

Here is a real day. One bar for every minute, in the order it happened. Every bar is made of trades, one after another.

Here are the last forty minutes, bigger. Watch one bar. That one, right there. Its last trade was the price of every slice. Then the next bar. A new last trade, and a new price.

Now watch the queues instead of the prices. When the buying side gets longer, the next agreement lands a bit higher. A buyer has to reach up to find somebody willing. More buyers than sellers, and the price walks up.

More sellers than buyers, and it walks down. Not because anybody decided. That is just where the agreements landed.

A price is the last trade. It moves when more people want in than out at that second.

And notice what a price is not. It is not a measurement of what the company is worth.

It is what two people agreed. People agree for all kinds of reasons. Some careful, some not.

A price is a fact about a trade. Not a fact about a business.

Here is the mistake. Somebody sees a price move. They assume something happened at the company. Sometimes something did.

Sometimes more people just wanted in than out that afternoon. The chart cannot tell you which.

Watch any live price for thirty seconds. Every one of those numbers is two people agreeing.

Check yourself

Who sets the price?

Nobody. It is the last trade.

Why did it move up one cent?

The next agreement happened one cent higher.

Is the price a fact about the company?

No. It is a fact about a trade.

Next lesson: How you would actually buy one.

For learning only. Not financial advice, not signals, not stock picks.