I don't know if it makes sense, I'm just wondering about its logic. For instance, Elon Musk has a huge amount of Tesla shares and right now he is selling his shares like a madman. Does the Tesla stock price get affected? Does it go down or the opposite?
I'm not sure I would classify Musk's recent TSLA share transactions as "selling like a madman".
For one thing his holdings are extensive and he's sold, so far at least, only a small percentage. On 11/15/2021 he sold a bit over 2M shares but if you read the disclosure filed with the SEC, he sold those shares out of a block he purchased the same day. The purchased shares were an options grant that he exercised which is the primary way he is compensated at Tesla.
So the net change for Musk's holding of TSLA was zero since he bought 2M shares and sold 2M shares the same day. But according to the disclosure he still directly owns more than 21M shares of TSLA. So this is far from selling "all his shares".
Also of note is the fact that TSLA is generally one of the market's most active stocks and its average trading volume is over 29M shares/day. So while Musk's transactions are large they are under 10% of the company's usual daily volume.
But directly answering your question, the answer is "maybe". If a major shareholder and/or founder liquidates their entire position in their company it would have two main effects:
Depending on the size of the holding compared to the outstanding shares of the company it may "flood" the market with shares and drive the price down.
Secondly and perhaps more importantly, it might cause other investors to lose confidence in the company and its stock and trigger them to sell also. This might further erode the stock price and even lead to a price collapse. While this is certainly not a given many investors, myself included, look at insider holdings as an indicator of their confidence in their own company. If a Chairman or a CEO liquidates 100% of their holdings it might be a "red flag" to some investors. How such actions are interpreted depends on a lot of things in addition to the actual transactions so there is no "100% rule" that says if an insider dumps stock is always bad.
Generally, however, such transactions are strictly regulated by the SEC so that people who are considered "insiders", like Musk, are not able to disrupt the market for their company's stock. Musk, as well, doesn't want to see TSLA stock tank since he's heavily invested in it.
Here's is a link to one of Musk's filings that shows the details of one of his recent "madman" transactions:
A major investor selling their shares will significantly increase supply for the stock while demand probably stays the same. The price would decrease.
Obviously a major investor will not just throw shares worth billions on the market but rather use tools like an iceberg order or direct trading with other investors
Maybe a little beyond what you are asking here but one of the repeated misconceptions that you might have seen is the idea that for the price of a stock to drop, a lot of it needs to be sold. For example, people with a HODL mentality seem to believe that as long as they (as a group/team) don't sell, the price of what they HODL cannot go to zero. It doesn't really work that way in reality.
One thing that you can know for sure is that for every sale, there is also a purchase. If Musk sells a lot of stock and if there are enough buyers willing to pay the current price (or more) the price can remain the same or even go up despite the selling.
That doesn't mean there isn't a relationship between selling and price. The reason a lot of selling can cause prices to drop is because not all buyers are willing to pay the same price. For example. Let's say you have 1000 pieces of candy. You have a friend Sam who will pay you 5 cents a piece. You want to sell all your candy. Sam buys 200 pieces and then is out of money. So you go to Mary and she will give you 4 cents a piece. So you sell her 500 pieces. You still have 300 pieces so you go to George. George doesn't like candy much but thinks he can resell it to someone else. He only gives you 1 cent a piece. It works the same way for stock except that instead of 3 people buying from just you, there are thousands of buyers and sellers.
Say Musk sells so much Tesla stock that he exhausts all the demand at the current price. If he wants to continue selling, he must take a lower price. The other thing that comes into play here is that Musk not only knows a lot about Tesla, he has a lot of control over it. If he starts selling 'like a madman' many/most investors will see that as a bad sign for the company. There are laws, though, against 'insiders' selling or buying large amounts without warning.
In some cases, there can be a situation where really bad news comes for a company and the people that were formerly willing to buy at $1000 might now only be willing to buy at $100 now. Or maybe they aren't willing to buy at any price. If no one is willing to buy at any price, the item on sale is considered worthless or effectively priced at zero. Back to our analogy with candy. Sam might be willing to buy at 5 cents normally but what if he finds out your cat peed on the candy? He no longer is willing to buy it at all and neither are Mary or George. Your candy now is deemed worthless even though none of it was sold.
The simplest explanation I can think of is to answer an analogous question:
Question: "If I fart indoors, does the room get warmer?"
Answer: "It depends on if the air conditioning is on. If the air conditioning is on then your fart probably wont make the room ACTUALLY get warmer, but it will cause it to cool down at a slower rate (albeit inperceptively)"
Selling stocks does have a negative effect on price, but whether or not the price ACTUALLY falls depends on all of the other factors affecting the price.