I'm new to financial markets and how they work is still fuzzy, so bear with me. This question actually has multiple questions :( ... and a bit of a story.
I was watching a YouTube video on the history of stock markets and happened to mention the 1920 crash. Apparently the cause of the crash was due to the reason that investors were panicking and thus selling. I didn't think too much on it until my brother mentioned in a discussion that investors selling meant there was a counter party buying.
Since then I have been trying to reason as to when "investors starts to panic and thus start selling".
My guess is that if buying and selling have low volatility or the share prices are fluctuating up and down predictably or is going long then things are grand. But investors start to panic and sell when shares drop below a certain threshold. Maybe prices drop by 5-10%? I dunno..
But then if investors are now going mad in fear and selling like crazy, who buys this bad stocks?
The answer I could come up with are short sellers. So, I'm guessing that short sellers make up the counter party that panicked investors sell their shares to.. otherwise who in their right mind would buy a falling stock?
So the short seller makes a tidy profit and returns the shares to the broker. The broker loses the bet, what does the broker do with these worthless stocks? Can't sell to other investors unless they think the stocks will go long. But let's assume no one thinks the stock will go long anytime soon or that day.
Maybe they can sell to other short sellers? If so, what happens when short sellers "run out"? I'm getting a headache thinking about it.