I just noticed that many people are still confused about what truly drives asset prices, whether it's stocks, gold, oil, or even Bitcoin. What exactly are demand and supply? That's a question I see frequently from new traders.

And why is it important? Because if you understand this mechanism, you'll be able to read the market much better, whether you're using fundamental analysis or technical analysis.

In reality, demand and supply are simply the desire to buy and the desire to sell. When we plot them out, we see a demand curve that shows the quantity buyers want to purchase at each price level, and a supply curve that shows the quantity sellers want to sell at each price level.

This basic rule is quite straightforward. When prices go up, demand tends to decrease, but supply increases. Conversely, when prices go down, demand increases, and supply decreases. The reason for this is driven by two factors: first is income effect. When prices fall, your wallet feels heavier—you have more real money to buy goods. Second is substitution effect. When the price of a good drops, it appears more attractive compared to similar products.

Factors influencing demand include income, consumer preferences, the number of consumers, and future price expectations. Currently, we also see unexpected events, such as the situation in the Middle East. When the Strait of Hormuz is closed, oil demand surges because transportation routes are halted, leading to massive demand.

Supply, on the other hand, involves sellers willing to offer goods at various price levels. The supply rule is similar: when prices rise, sellers want to sell more; when prices fall, they reduce their supply. Factors affecting supply include production costs, the prices of alternative goods that producers can make, the number of competitors, technology, and price expectations.

In 2026, we have a good example of a supply shock. When the Strait of Hormuz was closed due to the Iran war situation, about 20% of global oil suddenly disappeared from the market. While energy demand remained the same, oil prices skyrocketed due to shortages. This is a perfect demonstration of what demand and supply are and how they impact prices.

Now, what's interesting is the point where the demand and supply curves intersect—called equilibrium. At this point, prices and quantities tend to stay stable because of a balance of forces. If prices rise, sellers want to sell more, but buyers buy less, leading to excess inventory, which pushes prices back down. Conversely, if prices fall, buyers want to buy more, but sellers reduce their supply, causing shortages that push prices back up.

In financial markets, this principle still applies. Factors affecting demand in the stock market include economic growth, interest rates, and investor confidence. When interest rates are low, investors tend to seek higher returns in stocks. Factors influencing supply include corporate decisions on capital raising or share buybacks, new IPO listings, and market regulations.

When it comes to fundamental analysis, stock prices are driven by demand and supply, but not directly by the stock itself. Instead, they are driven by the desire to acquire the company. When earnings forecasts are positive, buyers are willing to pay higher prices, and sellers hold back, pushing prices up. Conversely, negative forecasts cause buyers to hesitate and sellers to lower their prices, leading to declines.

From a technical analysis perspective, the question of what demand and supply are is addressed using various tools. For example, candlestick charts show buying and selling pressure. Green candles indicate strong demand, red candles indicate strong supply, and doji candles show equilibrium between the two.

Trend analysis is another useful method. If prices keep making new highs, demand remains strong. Conversely, if prices keep making new lows, supply is dominant. Identifying support and resistance levels also helps—support is where demand is waiting to buy, and resistance is where supply is waiting to sell.

The Demand Supply Zone technique is quite popular. It involves looking for moments when the market is out of balance and likely to seek a new equilibrium. There are two main types: trading at reversal points and trend-following strategies.

For reversal trading, we have DBR (Demand Zone Drop Base Rally), which occurs after a rapid decline followed by consolidation. When buying pressure wins, prices break above the consolidation and move higher. Traders can enter on breakout signals. Conversely, RBD (Supply Zone Rally Base Drop) occurs after a quick rally followed by consolidation. When selling pressure dominates, prices break below the consolidation and fall sharply.

For trend-following, RBR (Demand Zone Rally Base Rally) occurs during a sustained uptrend with consolidations, and new positive factors can push prices higher. DBD (Supply Zone Drop Base Drop) happens during continuous declines with consolidations, and negative news can cause further drops.

Finally, what is demand and supply? They are fundamental components that economists, traders, and investors use to understand the market—whether for price valuation or trend forecasting. It may seem complex at first, but with practice and studying real market prices, it becomes intuitive. In my opinion, this is the most essential foundation for anyone serious about trading or investing.