The price trader is the analyst who tries to figure out exactly what a stock is worth.
Price traders are the most common type of trader in the stock market. Price traders buy a stock based on a fixed price. For example, they study Apple Computer (Nasdaq: AAPL) and determine that based on the company's public information as of August 2013, the stock is worth $400 or $425 or $387.25 a share. Price Traders buy the stock if it is below that value and sell the stock if it is above that value.
Because of price traders, stocks often trade up to a certain value and stop. Stocks also tend to trade between values quickly. For example, stocks - any stocks - tend to be more volatile when their stock price is between $45 and $50 as well as $90 and $100.
Some stocks also tend to "trade on the fives and tens" - meaning that the stock will trade at $5, move very quickly to $10, and then move very quickly to $15. This is due in part to option strike prices, which have either $5 or $10 separation in strike prices. Stocks with $5 option strike prices will often trade at the $2.50 level as well. This phenomenon is often seen most clearly at the end of a month when option expiration occurs.
Price traders never arrive at the same value for a stock. Given the hundreds, perhaps thousands, of individual criteria that can affect stock value, the only way two price targets end up being the same is by agreement or cohesion among analysts. As such, stocks tend to move quickly between common price targets.
In the end, the systems used by traders to buy and sell stocks force them to be price traders and traders tend to enter round numbers into these systems. This creates a situation where stocks tend to trade to round numbers: $1.00, $0.50, $0.25 and $0.75.
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