What are the key variables in determining supply and demand? It's a question I see many people overlook. When entering the stock market or trading assets for the first time, everyone tends to see price movements as driven by buying and selling pressure. But if you ask which factors truly drive those forces, the answer isn't simple.

Last month, when the Hormuz Strait was closed and Iran was at war, I saw oil prices spike immediately by 20%. A significant portion of the global oil supply disappeared from the market. Yet, the world's energy demand remained the same. This is what’s called a complete supply shock—prices can't go down because of a shortage of goods.

These cases show that the key variables in defining supply and demand are not just price. There are many factors that influence the decisions of buyers and sellers. On the demand side, these include economic growth, interest rates, investor confidence, and even psychological factors. When the economy is good, people are willing to pay more to acquire assets. But when interest rates rise, investment demand decreases.

For supply, important variables include production costs, technology, tax policies, and even weather conditions. Companies will increase production when prices are high, but if costs spike or natural disasters occur, the willingness to sell decreases.

In the stock market, these factors work together. When the economy grows well, companies are more eager to go public, and investors are more willing to buy stocks. Conversely, when negative news hits, sellers increase their volume, while buyers retreat.

Understanding these variables helps us read the market better, whether through fundamental analysis (looking at earnings, growth, policies) or technical analysis (examining candlesticks, support and resistance levels, trading volume). Both methods seek signals of the balance between supply and demand.

For example, a large green candlestick indicates buying pressure overcomes selling pressure. A large red candlestick shows selling pressure dominates. If you see a doji (a candlestick with open and close at the same level), it suggests a stalemate—neither side has won yet.

The Demand and Supply Zone technique is widely used by traders to catch market turns. When prices rally quickly and then pause within a range (base), if buying pressure resumes, prices will break out higher (another rally). Conversely, if prices drop sharply and then consolidate, and selling pressure returns, prices will continue to fall.

Most importantly, the variables that determine supply and demand are constantly changing. New factors emerge, policies shift, news updates alter perceptions—these all change the equilibrium, and prices follow suit. If you understand what drives supply and demand, you'll be better at reading the market and making smarter investment decisions.