I just noticed that many people are still confused about demand and supply—what exactly is the difference, and why it’s so important in investing. So I’d like to share my understanding of this basic principle, which actually sets the direction for the price of all assets.

Simply put, demand is the desire to buy, while supply is the desire to sell. When we look at demand, prices rise when more people want to buy, and fall when fewer people want to buy. Conversely, with supply, the more people want to sell, the lower the price has to go in order to attract buyers.

What I find especially interesting is that demand and supply are different not only in theory, but also in real-world numbers and trading volumes in the market. For example, when we look at oil prices last March, when the Strait of Hormuz was closed due to the Iran war situation, about 20% of the world’s oil supply that passes through this point disappeared from the market. Meanwhile, energy demand remained. As a result, prices surged rapidly. This is a clear case of Supply Shock.

In the stock market, the same thing works. When there’s good news about a company, more investors come in, increasing demand and driving prices up. Conversely, if there’s bad news, supply increases because people want to sell, and prices fall.

What I’m interested in is using this principle to time trades. If we can predict demand and supply, we can estimate the prices that are likely to happen. There’s a technique called the Demand Supply Zone, which is used to find moments when price falls out of balance and is likely to swing as it searches for a new equilibrium.

When prices surge quickly (Rally) or drop sharply (Drop), it indicates an imbalance in demand or supply. After that, the price enters a consolidation phase called a Base, where buying and selling forces are fighting each other. If new factors come in, the price breaks out and continues moving in the same direction.

Actually, understanding how demand and supply are different isn’t hard—but it requires you to see the real asset prices that are occurring in the market. I’ve tried applying this principle to analyze price trends across many different periods, and it has helped me see the direction more clearly. If you’re interested in learning more, check out the prices of various assets on Gate—it will help you understand even more deeply.