It seems that many people still do not truly understand how supply and demand affect asset prices. I just noticed that when the Hormuz Strait closed last month, oil prices surged dramatically because supply decreased by over 20% globally, while demand remained the same. This is the power of a supply shock that impacts the market.

Simply put, supply is the amount of goods offered in the market by sellers, and demand is the buyers' desire to purchase. When both are not balanced, prices change. If supply exceeds demand and there isn't enough demand, prices fall. Conversely, if supply is scarce but demand remains strong, prices rise.

In the financial markets, this isn't as complicated as it seems. When stocks have strong buying pressure, prices go up. When there's heavy selling, prices go down. But the key is understanding where this buying and selling pressure comes from—whether it's due to good news, bad news, economic growth, or investor confidence.

When a company announces higher profits, buyers want to purchase more (demand increases), while sellers hold back from selling. The result is a price increase. Conversely, if the news is negative, buyers hold back, and sellers increase their selling volume (supply increases), causing prices to fall.

There is a point called equilibrium, where supply and demand balance each other. Prices tend to stabilize at this point. If prices go higher than equilibrium, sellers increase their volume until prices return to normal. If prices drop below equilibrium, buyers step in more aggressively, pushing prices back up.

For technical traders, supply and demand can be read from candlestick charts. A large green candle indicates strong buying pressure; a large red candle indicates strong selling pressure. Doji (where open and close are close) shows a battle between buyers and sellers.

Looking at support and resistance levels is a way to see where supply and demand are located. Support is an area where buying interest is waiting; resistance is an area where selling interest is waiting. When prices break through resistance, it shows buying pressure is stronger. When prices break support, it indicates selling pressure is dominant.

The Demand Supply Zone technique uses this principle: prices rally quickly (Rally) and then pause within a range (Base). When good news comes out, prices break through the resistance (Rally again). This is a common RBR pattern. Conversely, prices drop sharply (Drop) and pause (Base). When bad news appears, prices continue to fall (Drop again). This is a DBD pattern.

For reversal trading, if prices fall sharply and selling pressure starts to slow, prices may pause in a range. When buying interest returns strongly, prices reverse upward (DBR). Conversely, if prices rise sharply and buying slows down, with increasing selling pressure, prices may reverse downward (RBD).

What I find important is that supply, which is crucial for investing, isn't just about the numbers themselves but about how it changes. When supply shifts and demand remains the same, prices will definitely change. This is how you can profit from market imbalances.

Learning this isn't difficult, but you need to watch real prices often to see how supply and demand work in action. This helps you better predict price movements and timing.