There’s one thing I’ve noticed that most investors still don’t fully understand: what are the factors that determine demand and supply? Because if you can’t figure that out, it’s hard to predict the price direction accurately.

Actually, demand and supply are very simple—they are the forces of buying and selling. When someone wants to buy more than others want to sell, the price goes up, and vice versa. The tricky part is understanding what factors determine demand and supply that drive both of these forces.

On the demand side, it’s not only about price. When the economy improves, people have more money left over, and their demand for investment increases. Lower interest rates also have the same effect: investors move out of bonds and look for better returns in stocks. In addition, market sentiment is extremely important. If good news comes in, or there are expectations that a company will grow, everyone wants to buy.

As for supply, the factors determining supply and demand on this side are related to how many shares are available. If a company issues more shares, conducts a capital increase, or buys back shares, it affects the number of shares in the market. New IPOs increase supply. Tax policies and production costs—everything like this affects whether sellers are willing to offer shares for sale.

Once you understand the factors that determine demand and supply, you come to the truly important topic—equilibrium. The actual price in the market occurs at the point where the buying and selling forces are equal. If you can predict where that point is, you’ll know where the price should go.

In trading techniques, we look at Price Action. Green candlesticks indicate that buying pressure is winning, while red candlesticks indicate that selling pressure is winning. Read the trend: if new highs keep getting made, it shows demand is still strong; if new lows keep getting made, it shows supply is winning.

Support (Support) is the level where people are waiting to buy. Resistance (Resistance) is the level where people are waiting to sell. Both are formed because different groups of investors have different opinions about the asset’s fair value.

The Demand Supply Zone technique is suitable for timing entries. There are two main types: trading when the price reverses, such as when the price drops and forms a base (Drop Base Rally), where buying pressure is now returning; or when the price rises and forms a base (Rally Base Drop), where selling pressure is coming in. The other type is continuation trading, where the price has just broken out of a base and continues in the same direction.

In short, if you understand what factors determine demand and supply, and you can read the buying and selling pressure in the market, you’ll have enough information to make better investment or trading decisions. This isn’t hard—but it does require practice and observation.