I just realized that many people are still confused about the principles of supply and demand—what they really mean. I want to share my understanding, which I’ve accumulated from trading for quite a while.

Simply put, supply and demand refer to the desire to buy and the desire to sell. If you understand this point, it will become much clearer to see how prices move.

Let's start with demand, which is the desire to buy a product. When prices drop, people want to buy more because they have more leftover money and, compared to other goods, the price looks cheaper. Conversely, if prices rise, the desire to buy decreases. That’s just human nature.

As for supply, it’s the desire to sell. Sellers are willing to sell more when prices are high and reduce the amount they sell when prices are low because it’s about their profit. Many factors influence supply, such as production costs, manufacturing capacity, technology, and even tax policies.

A clear example is the oil market. In March of last year, the Strait of Hormuz was closed due to political tensions, causing oil supply to drop by over 20% globally. However, energy demand remained the same. The result was a sharp price increase because of a shortage—this is called a supply shock.

The key point is that prices will find an equilibrium point on their own. If prices go above the equilibrium, sellers will try to sell more, but buyers will buy less, leading to excess inventory. Prices then need to adjust downward. Conversely, if prices fall below the equilibrium, buyers want to buy more, but sellers reduce their sales, causing shortages. Prices will then rise again.

In financial markets, this principle applies similarly. Stock prices fluctuate because of supply and demand, but what drives it isn’t just the stock itself, rather the desire to acquire that asset. Factors affecting demand include interest rates, earnings, growth expectations, tax policies, investor confidence, and even political events.

When the economy is good, people have more money, and investment demand increases, raising stock market demand. Conversely, during economic downturns, people tighten their spending, and demand decreases.

Traders use this principle along with technical tools, such as candlestick charts. A green candlestick (closing price higher than opening) indicates strong demand, while a red candlestick (closing lower than opening) indicates strong supply. They also look at support and resistance levels—support is where buyers are waiting to buy, and resistance is where sellers are waiting to sell.

Demand and supply zones are popular techniques for timing trades. They help identify when the market is out of balance and likely to revert to a new equilibrium. Prices may surge or plummet quickly, then pause within a range to build a base. When new factors come in, prices break through the range and continue in the same direction.

Applying supply and demand means understanding why prices move—it's not just about looking at numbers but grasping the underlying dynamics. Thinking this way makes market analysis much clearer.

Finally, this principle isn’t as difficult as it seems. It just requires real-world testing—observing actual prices in the market and noting when demand is strong or supply is strong. The more you practice, the clearer the picture becomes.