What is supply? Understanding this principle can lead to higher income from investments.

If you observe the stock market carefully, you’ll find that stock prices do not fluctuate randomly, but move according to certain forces. These forces that drive these changes are called “demand” and “supply,” or more commonly known as Demand and Supply, which are fundamental forces controlling asset prices in both real markets and financial markets.

Why Investors Need to Understand Demand and Supply

When a large number of buyers come into the market simultaneously, stock prices tend to rise. Conversely, when many sellers enter, prices tend to fall. Understanding which force is stronger and which is weaker helps investors predict price directions and better time their buy and sell decisions.

Demand (Demand) - The Force That Pushes Prices Up

Demand is the desire to buy goods or services at various price levels. In the context of the stock market, demand refers to investors’ willingness to buy stocks at different prices.

When we draw a graph showing the relationship between price and the quantity that buyers want, we see a line called the “Demand Curve” (Demand Curve). This line simply shows that lower prices → more people want to buy, and higher prices → fewer people want to buy.

Basic Rules of Demand

Demand always has an inverse relationship with price. Why is this? Because two factors act:

Income Effect: When prices decrease, the cost of goods that people want to buy also decreases, saving more money. This saved money can be used to buy other goods or additional units.

Substitution Effect: When the price of this stock drops relative to similar stocks, investors tend to prefer this stock because it offers better value.

What Drives Demand in the Financial Market

• Macroeconomic Conditions: When interest rates fall, money in the present is less beneficial to save in banks, so investors tend to buy more stocks.
• Cash in the System: When there is more cash in the market, people have more capacity to buy.
• Investor Confidence: Good news about companies, the economy, or industry trends increases investors’ desire to buy.
• Earnings Expectations: If analysts expect the company to earn more profit in the next quarter, buying activity increases.

Supply (Supply) - The Force That Pushes Prices Down

Supply is the desire to sell goods or services at various price levels. In the stock market, supply refers to the volume of stocks that shareholders or related entities want to sell.

The graph of (Supply Curve) behaves opposite to the demand curve, meaning higher prices → more sellers want to sell, and lower prices → fewer sellers want to sell. When prices are high, sellers know they can get good prices.

Basic Rules of Supply

Supply has a positive relationship with price. That is, if prices rise, sellers are motivated to sell more; if prices fall, they will reduce their selling volume.

Factors Affecting Supply

• Company Policies: Share buyback decisions reduce supply, while issuing new shares increases supply.
• New IPOs: New listings add to the total shares available.
• Production Costs: When costs increase, companies are less motivated to produce.
• Market Regulations: Silent Periods restrict large shareholders from selling shares temporarily, reducing supply.
• Technology: Improved technology allows companies to produce more, increasing supply.

Equilibrium (Equilibrium) - The Price-Setting Point

Stock prices in the market are not determined solely by demand or supply but occur at the equilibrium point—the point where demand and supply curves intersect.

At this point:

• The quantity buyers want to buy equals the quantity sellers want to sell.
• The resulting price tends to be stable because no force exceeds the other.

If the price rises above equilibrium: Sellers want to sell more, while buyers reduce their buying → stock inventory builds up → pressure pushes the price back down to equilibrium.

If the price falls below equilibrium: Buyers want to buy more, while sellers reduce their sales → shortages occur → pressure pushes the price back up to equilibrium.

Factors That Change the Balance in the Financial Market

When new news or information arrives, the existing equilibrium often breaks down, leading to a new equilibrium.

Changes in Demand

• Central bank lowers interest rates → investors want to buy more stocks.
• Companies announce higher profits → increased confidence → more buying.
• The economy (abbreviated as) → investors seek less risk → decreased demand.

Changes in Supply

• Companies announce share buybacks → supply decreases → prices tend to rise.
• New IPOs enter the market → supply increases → prices tend to fall.
• Major shareholders start selling → supply increases → prices tend to decrease.

Applying Demand and Supply to Stock Price Analysis

1. Fundamental Analysis (Fundamental Analysis)

Actual stock price movements reflect demand and supply. Fundamental analysts believe that:

• Price rises = strong demand (Investors believe the company will grow)
• Price falls = strong supply (Concerns about deteriorating earnings)

Therefore, analysts look for fundamental factors that can change demand or supply, such as:

• Better earnings → increased demand → higher prices
• Forecasted worse earnings → increased supply → lower prices
• News about institutional investor interest → increased demand → higher prices

2. Technical Analysis (Technical Analysis)

Technical traders use various tools to capture changes in demand and supply:

Candlestick Charts (Candle Stick):

• Green candle (Close > Open) = Strong demand, closing higher than opening
• Red candle (Close < Open) = Strong supply, closing lower than opening
• Doji (Open ≈ Close) = No clear direction, indecisive

Market Trends (Market Trend):

• Making new highs = demand is still strong
• Making new lows = supply is still strong
• Moving within a range = equilibrium

Support & Resistance (Support & Resistance):

• Support = price level where investors want to buy (Demand waiting to buy)
• Resistance = price level where investors want to sell (Supply waiting to sell)

Demand Supply Zone Technique - Capturing Opportunities in Balance

One popular method is the Demand Supply Zone, which looks for points where equilibrium breaks and a new balance forms.

1. Reversal Up (Reversal) - DBR (Demand Zone Drop Base Rally)

• Price drops rapidly (Drop) due to strong supply
• Then consolidates in a range (Base) as supply slows
• When good news arrives, demand returns strongly, breaking out upward (Rally)

Traders can buy at the breakout point above the range.

2. Reversal Down (Reversal) - RBD (Supply Zone Rally Base Drop)

• Price rises quickly (Rally) due to strong demand
• Then consolidates in a range (Base) as demand slows
• When bad news occurs, supply returns strongly, breaking down below the range (Drop)

Traders can sell at the breakdown point below the range.

3. Continuation Uptrend (Continuation) - RBR (Demand Zone Rally Base Rally)

• Price continues upward (Rally 1) due to strong demand
• Consolidates in a range (Base) as it encounters resistance
• New factors cause demand to return strongly, pushing prices higher (Rally 2)

4. Continuation Downtrend (Continuation) - DBD (Supply Zone Drop Base Drop)

• Price drops again (Drop 1) due to strong supply
• Consolidates in a range (Base) as resistance is met
• Additional negative news causes supply to return strongly, pushing prices lower (Drop 2)

Summary: Better Price Estimation Through Understanding Demand and Supply

Demand and supply are not just economic theories in textbooks but forces reflected daily in the financial markets. Traders and investors who understand these principles well can read the market better, predict price movements more accurately, and time their trades more effectively.

Learn the concepts, practice applying them to real asset prices, regularly study price charts, and you will see how the balance between demand and supply works. Then, your investment decisions will be based on better data, increasing your chances of success.