I just noticed that many people are still confused about a very fundamental concept in investing, which is supply and demand. Whether trading stocks or investing in other assets, understanding this principle is truly the key to reading the market.

Let's talk about what the law of demand means. In reality, it’s just the relationship between price and the quantity people want to buy. When prices are high, people buy less. When prices are low, people buy more. That’s it. But when we look at supply (the amount sellers offer), things start to get more interesting.

In fact, the price we see in the market isn’t caused by demand or supply alone, but by the point where they meet. This is called equilibrium. Imagine if everyone wanted to buy a certain stock, but there were very few shares available. The price would shoot up. Conversely, if everyone wanted to sell but no one was buying, the price would drop.

A clear example is oil. Since the situation in Iran led to the Strait of Hormuz being closed, the amount of crude oil that most of the world relies on disappeared from the market. The demand for energy remained the same, but supply decreased. The result was a rapid spike in oil prices. This is a clear supply shock.

This concept isn’t limited to goods; it also applies to stocks. When a company’s performance improves, investor confidence increases, and the demand to buy its shares rises, pushing the price up. Conversely, when negative news comes out, people rush to sell, and the price drops.

For traders, the law of demand is very useful for timing buy and sell decisions. For example, when the price drops to a support level, it’s often a point where demand is strong. People start to think the price is cheap and buy. Resistance levels are where supply is strong; people think the price is high and start selling.

The concept of Demand Supply Zone, which is popular among traders, also comes from identifying points where the price loses balance. When there’s an imbalance between supply and demand, the price moves toward a new equilibrium. Entering a trade at the breakout of a consolidation is a method many traders use to capture this potential.

Importantly, whether it’s fundamental analysis or technical analysis, both rely on the principles of supply and demand. The difference is only in how we gather information for analysis.

If anyone still doesn’t understand or wants to learn more about how to apply this concept in trading, try looking at support and resistance levels of stocks you’re interested in on Gate. Most price movements can be explained by changing buying and selling pressures.