I just noticed that many people still don’t understand a fairly important concept in trading and investing—demand and supply, or the supply-and-demand problem. In fact, it’s not that difficult, but once you really understand it, you’ll see that all asset prices in the world are driven by the same mechanism.

Let’s start with the basics. Demand is the need to buy, while supply is the need to sell. When we plot the relationship between price and quantity, we can see that demand is inversely related to price. When the price goes up → people want to buy less. When the price goes down → people want to buy more. Why is it like this? Because two factors are at work: the income effect and the substitution effect.

The income effect means that when prices fall, the money in your pocket becomes more valuable, so you can buy more. The substitution effect means that when the price of a good drops, it looks cheaper than other similar goods, so people switch and buy this one instead.

As for supply, it works the opposite way. When the price rises → sellers want to sell more. When the price falls → sellers want to sell less. It’s like: if the price is good, sellers have an incentive to produce and sell more; if the price isn’t good, they don’t want to sell.

The best part is the equilibrium point—where the demand curve and the supply curve intersect. At this point, the price tends to remain stable. If the price adjusts upward from equilibrium, sellers want to sell more, but buyers want to buy less, resulting in excess inventory and downward pressure on price—bringing it back to equilibrium. If the price adjusts downward from equilibrium, buyers want to buy more, but sellers don’t want to sell, causing a shortage and upward pressure on price—bringing it back to equilibrium again.

Now there’s an interesting situation happening in the market. The Strait of Hormuz has been closed due to conditions in the Middle East, causing about 20% of the world’s crude oil that passes through this point to suddenly disappear from the market. This is a real supply shock—supply vanishes, while energy demand remains the same. The result is a rapid surge in oil prices because of the shortage.

When it comes to financial markets, demand and supply work the same way. There are many factors that affect demand, such as economic growth, interest rates, liquidity in the system, and investor sentiment. If interest rates are low, investors look for higher returns in the stock market, so demand increases. If liquidity is high, there’s more money, and people are more eager to invest.

Supply in the stock market depends on company decisions, such as issuing additional shares or buying back shares. Newly listing companies (IPO) increases the supply of securities. Market regulations also matter—sometimes strict rules prevent people from selling shares, such as the Silent Period after an IPO.

Once you understand this, analyzing stock prices becomes easier. Stock prices falling = strong selling pressure; stock prices rising = strong buying pressure. But deeper than that, we’re looking at how much people want to buy that business. If projections suggest the business will grow well, the buying side will be willing to pay higher prices, while the selling side will slow down selling, pushing prices up. If projections turn negative, the buying side holds back, the selling side is willing to cut prices, and prices fall.

Technical analysis uses the same principles. Green candlesticks = strong demand. Red candlesticks = strong supply. Doji = both sides are battling evenly, and the price doesn’t know where to go—so follow the price trend. If it keeps making new highs = demand is still strong. If it keeps making new lows = supply is still strong. If it moves within a range = about equal.

Support and resistance levels are an application of demand and supply. Support is where there is buying pressure waiting to buy, because investors believe the price there is reasonable. Resistance is where there is selling pressure waiting to sell, because people think the price is too high.

A commonly used technique is the Demand Supply Zone, which looks for moments when price loses balance. Prices will move rapidly or drop hard, and then consolidate within a range. When new factors come in, the price continues to move in the same direction. There are two types of trading: trading at reversal points and trend-following trading.

An upward reversal (DBR) happens when the price drops sharply and then consolidates in a range. When buying gains the upper hand, the price breaks above the upper range and continues upward. A downward reversal (RBD) happens when the price rises sharply and then consolidates in a range. When selling gains the upper hand, the price breaks below the lower range and continues downward.

Trend-following trading occurs when the price consolidates within a range, but when new factors arrive, the momentum in the original direction becomes stronger. The price breaks out of the range and continues in the same direction. Uptrend continuation (RBR) means the price rallies, consolidates, and then rallies again. Downtrend continuation (DBD) means the price dumps, consolidates, and then dumps again.

In short, demand and supply are not just economic concepts; they’re fundamental mechanisms driving everything’s price in the market—whether that’s stocks, oil, gold, or digital assets. If you understand this well, reading the market becomes more accurate, and trading becomes more principled. It’s not just guessing where prices will go, but understanding why they have to move in that direction.