When you see news about the Middle East war and oil prices soaring, it makes you think of something that most people still don’t understand—namely why the prices of various assets change like this. In fact, there are basic economic principles behind it: the meaning of supply and demand.

Put simply, the meaning of supply and demand is a contest between buyers and sellers. When people want to buy a lot but there is not much of the goods, prices rise. When people want to sell a lot but there are few buyers, prices fall. That’s all there is to it—simple.

Let’s take a deeper look at how each side works. Demand is the desire of buyers to purchase at different price levels. When prices drop, people want to buy more. Conversely, when prices rise, demand decreases. This is called the law of demand, which is driven by two reasons: when prices fall, the money in our pockets becomes more valuable, so we can buy more; and when prices fall, the goods look more attractive than other products with the same price.

But the desire to buy doesn’t depend on price alone—there are other factors involved, such as the buyers’ income, preferences, the prices of other goods, expectations about future prices, and even sudden events happening in the world. For example, when the Iran war led to the closure of the Strait of Hormuz, oil demand surged dramatically because people feared a shortage.

As for supply, it is the sellers’ desire to sell. Opposite to demand, when prices are higher, sellers want to sell more; when prices are lower, sellers reduce the quantity they sell. This is the law of supply. There are many factors that affect supply, such as production costs, technology, the number of competitors, and expectations about future prices.

When the demand curve and the supply curve intersect, that is the equilibrium point. The actual price in the market will be at this point, because if the price were higher than this, sellers would want to sell more but buyers would buy less, leaving an excess of goods—so the price would have to come down. If the price were lower than this, buyers would want to buy more but sellers would sell less, causing a shortage—so the price would have to rise.

In financial markets, the meaning of supply and demand applies to stocks and other assets as well. The demand for stocks comes from expectations that the company will grow and generate profits. The demand to sell comes from fear or the need to keep money/cash on hand.

When good news comes in, buyers want to buy more, sellers hold back from selling, and stock prices rise. Conversely, when bad news comes in, buyers hold back from buying, sellers want to sell to avoid risk, and prices fall.

In price-action technical analysis, traders use Candlestick charts to observe who wins—demand or supply. A green candlestick means buyers are winning; a red candlestick means sellers are winning. If the candlestick is a doji (the opening and closing prices are close), it shows that the two sides have equal strength.

Looking at price trends also helps. When prices keep making new highs, it indicates demand is strong. When prices keep making new lows, it indicates supply is strong. Support and resistance levels are points that reflect balance between the two sides.

The Demand Supply Zone technique is a popular method for timing trades. When prices rise rapidly, then pause within a range, and afterward break upward again, that is a buy signal. Conversely, when prices plunge, then pause within a range and afterward break downward again, that is a sell signal.

In reality, understanding the meaning of supply and demand helps us read the market better—whether it’s the stock market, the oil market, or the digital asset market. This principle applies broadly, but like any skill, it requires practice and studying real price movements to see the full picture. Try applying it yourself, and you’ll understand why prices move the way they do.