Have you ever experienced this?
You’ve been watching a stock on the Colombo Stock Exchange (CSE) for weeks.
The price keeps going up. The company looks strong. Your analysis suggests that the stock could continue rising.
So, you finally decide to buy.
You place the order…
And suddenly, the stock starts falling. 😭
You might even start wondering:
“Did the market know that I was going to buy?”
Of course, the market isn’t personally targeting you.
But there are some interesting reasons why this can happen.
It’s All About Buyers and Sellers
At the most basic level, stock prices are determined by supply and demand.
If more investors are willing to buy a stock at higher prices, the price can rise.
If more investors are willing to sell at lower prices, the price can fall.
But there’s another important concept that many new investors don’t fully understand:
The price you see on your screen is not necessarily the price at which you can buy or sell a large number of shares.
This becomes especially important when you are dealing with stocks that don’t have a lot of trading activity.
Imagine You Want to Buy 100,000 Shares
Let’s say you want to buy 100,000 shares of a Sri Lankan company at LKR 100 per share.
You place a large buy order.
But there may not be 100,000 shares available from sellers at LKR 100.
Maybe there are:
- 20,000 shares available at LKR 100
- 30,000 at LKR 101
- 25,000 at LKR 102
- 25,000 at LKR 103
Your order could therefore push the price higher as you buy through the available sell orders.
This is called market impact.
The opposite can happen when someone tries to sell a large number of shares.
A large sell order can consume the available buyers and push the price lower.
But What About Your Small Investment?
You might be thinking:
“I’m not buying 100,000 shares. I’m just investing LKR 50,000. How can my order move the market?”
Most of the time, it probably doesn’t.
If you’re a small retail investor buying a relatively liquid stock, your individual order is unlikely to have a meaningful impact on the market.
So why does the stock sometimes fall immediately after you buy?
There are several possibilities.
1. You Bought After the Price Already Increased
This is one of the most common reasons.
Imagine a stock increases from:
LKR 80 → LKR 90 → LKR 100
You see the rise and decide to buy at LKR 100.
But some investors who bought at LKR 80 may now decide to take their profits.
They start selling.
The price falls to LKR 95.
It feels like the market reacted to your purchase.
But in reality, you simply bought after a significant part of the price increase had already happened.
2. Other Investors Are Taking Profits
Markets are made up of thousands of investors with different strategies.
Some investors may have been waiting months for the stock to reach a certain price.
When it reaches that level, they sell.
You might be buying at exactly the same time they are taking profits.
Your buy order didn’t necessarily cause the decline.
You simply entered the market when other investors were exiting.
3. New Information Can Change the Price
Stock prices constantly react to information.
A company might announce:
- Lower-than-expected profits
- A new debt facility
- A change in management
- Lower sales
- Higher costs
- A dividend announcement
- A new investment
- Regulatory changes
- Economic developments
You might buy the stock at 10:00 AM.
At 10:05 AM, new information becomes available.
The price can move immediately.
It has nothing to do with the fact that you bought the stock.
4. Liquidity Matters
This is particularly important when investing in smaller or less actively traded companies.
Liquidity refers to how easily you can buy or sell shares without significantly affecting the price.
A heavily traded company might have many buyers and sellers.
A less actively traded company might have very few.
That means even a relatively modest order can sometimes have a larger impact on the market price.
5. Algorithms and Professional Traders
Modern financial markets are also heavily influenced by technology.
Professional investors use sophisticated systems and algorithms to analyse:
- Price movements
- Trading volumes
- Market trends
- Order flows
- Company announcements
- Economic data
Some trading systems can execute transactions extremely quickly.
This is commonly known as high-frequency trading (HFT) when the strategies involve very high-speed automated trading.
But here’s something important:
You shouldn’t assume that professional traders are secretly watching your individual LKR 10,000 or LKR 50,000 investment.
Your individual order is generally far too small to matter.
Professional investors are looking at the market as a whole and trying to identify patterns and opportunities.
So, Is Someone Manipulating the Market?
Not necessarily.
There are legitimate reasons why prices move immediately after you buy.
And yes, financial markets can involve sophisticated strategies and, in some circumstances, market manipulation can occur. That’s why securities markets have rules and regulatory oversight.
But the idea that “I bought the stock, therefore someone saw my order and deliberately pushed the price down” is usually not a good explanation.
Sometimes it’s simply coincidence.
The Psychology Is Interesting
There’s also a psychological reason this feels much worse than it actually is.
Imagine you buy a stock at LKR 100.
The next day it goes to LKR 95.
You immediately notice the loss.
But imagine you don’t buy it.
The stock goes from LKR 100 to LKR 95.
You probably wouldn’t care nearly as much.
Once you own something, you pay much more attention to its price.
That’s called ownership bias and is closely related to several behavioural finance concepts.
What Should a Long-Term Investor Do?
If you’re investing for five or ten years, worrying about what happens five minutes after you buy a stock usually isn’t productive.
The more important questions are:
Is the company financially healthy?
Is the business growing?
Is the valuation reasonable?
Does the company have a sustainable competitive advantage?
Are you comfortable holding the investment through periods of volatility?
If your investment thesis is based on the company’s long-term fundamentals, a small short-term price movement shouldn’t automatically change your decision.
But if you’re trading based on short-term price movements, then liquidity, spreads, order execution, volatility and market conditions become much more important.
The Bottom Line
The market isn’t necessarily waiting for you to buy before pushing the price down.
Sometimes you buy after a strong price increase.
Sometimes other investors are taking profits.
Sometimes new information changes the market’s expectations.
Sometimes there simply aren’t enough buyers or sellers at the price you expected.
And sometimes…
you just got unlucky. 😅
The stock market doesn’t know that you bought the share.
It doesn’t care about your portfolio.
And unfortunately, it doesn’t guarantee that the price will go up just because you finally decided to buy.
That’s why successful investing is less about predicting what happens tomorrow and more about understanding what you’re actually investing in.
Thanks for reading!
