I just noticed that the asset prices we follow move more with trading activity than I thought, and actually, they follow the simple yet powerful laws of supply and demand.

Think about it—when oil prices surged during the closure of the Hormuz Strait, it wasn't because the quality of oil changed, but because about 20 percent of the global supply disappeared. Meanwhile, energy demand remained the same. The result was that prices had to adjust upward to find a new equilibrium. This is what we call a Supply Shock.

It's not just about numbers; it's also about the minds of buyers and sellers. When goods are scarce, buyers are willing to pay higher prices, and sellers are less eager to sell. Both sides want prices to go up. Conversely, when there is plenty of stock, buyers hold back, and sellers lower prices to attract buyers.

In financial markets, the laws of supply and demand work the same way. Stocks are commodities too, with buyers and sellers. When good news comes out, more buyers enter, demand spikes, and prices rise. Conversely, when bad news appears, sellers increase, supply exceeds demand, and prices fall.

What’s interesting is that the factors influencing demand are diverse—interest rates, macroeconomics, investor confidence, liquidity—all of these affect investment demand. As for supply, it depends on corporate decisions—capital increases, share buybacks, tax policies—all of which change the amount of goods in the market.

From a trading perspective, we can use Demand and Supply Zones to time our trades. When prices rise rapidly and then pause within a range, it indicates that buying and selling forces are battling. If buying wins, prices break upward; if selling wins, prices plunge. Enter trades at breakout points with stop-losses set properly.

In an uptrend, you'll see the Rally Base Rally pattern, where prices rise, pause, then rise again because demand remains strong. In a downtrend, you'll see Drop Base Drop, where prices fall, pause, then fall again because supply remains strong.

What I’ve observed is that understanding the laws of supply and demand isn’t as difficult as it seems. It just requires practicing observing real prices enough because theory and practice differ slightly. In theory, everything is linear. In reality, there’s a lot of noise—strange news, crowd sentiment—all blending together, sometimes causing unexpected price movements.

But if you understand the fundamental principles of supply and demand, you'll be able to read the market better, analyze more deeply, and make better decisions. Whether through fundamental or technical analysis, both rely on this understanding because ultimately, asset prices depend on trading forces in the market, and those forces come from supply and demand.