Have you ever wondered why stocks move up or down?
You may think it’s applicable to supply and demand, and while that’s true, there’s also a deeper, more fundamental reason.
We refer to it as The Path of Least Resistance.
The path of least resistance means taking the easiest route. Naturally choosing the easiest option. As humans, this trait is inherent as it is in nature.
The best example is a waterfall. The water spills off the cliff due gravity (path of least resistance) and into a flowing body of water.
How this relates to the stock market
Wherever the resistance is at the stock is what often determines it. If the resistance is pushing from the ground up – it pushes the stock up. Whereas, if the resistance is at top, it will push the stock down.