I just realized that many people are still confused about what demand and supply really mean, even though they are the most fundamental concepts for understanding price movements in stock markets, oil, gold, or even digital assets.

Simply put, demand and supply refer to the buying and selling desires. Let me break it down clearly because it’s not as complicated as it seems.

On the demand side, it is the desire of people to buy. When prices go down, people are willing to buy more. When prices go up, the desire to buy decreases. This is called the law of demand, with two main factors: income effect (when prices drop, your wallet’s purchasing power increases) and substitution effect (comparing with other goods).

On the supply side, it is the desire of sellers to sell. When prices rise, sellers want to sell more. When prices fall, sellers tend to withdraw. This is the opposite direction of demand, perfectly aligned.

What’s interesting is that when the demand and supply curves intersect, that point is called the equilibrium point. At that point, the price and quantity tend to stay stable because if the price rises too much, there will be excess goods to sell, forcing prices down. If the price drops too much, shortages occur, pushing prices up.

Besides fundamental factors, other elements also influence demand and supply, such as the environment that changes over time—seasons, government policies, technology, consumer confidence, and even unexpected events like the war in the Middle East, which blocked oil routes, causing over 20% of global oil supply to disappear from the market and rapidly increasing prices.

In financial markets, demand and supply refer to the movement of capital, interest rates, investor confidence, general news, and corporate policies. When good news comes out, the buying side strengthens, stock prices rise. When bad news hits, the selling side gains strength, and stock prices fall.

Demand and supply zones in trading techniques leverage this concept. Traders look for points where prices move sharply up or down (showing imbalance) and enter trades when the price breaks out of consolidation ranges.

There are two main patterns: DBR (Demand Zone Drop Base Rally), caused by heavy selling, where prices plunge, then buyers step in, and the price reverses upward; and RBD (Supply Zone Rally Base Drop), caused by heavy buying, where prices surge, then sellers enter, and the price reverses downward.

For trend-following, RBR (Rally Base Rally) in an uptrend and DBD (Drop Base Drop) in a downtrend occur due to new factors strengthening demand or supply again.

Another perspective is candlestick analysis: green candles show buying strength, red candles show selling strength, and doji candles indicate a standoff with equal forces.

Support and resistance levels are based on the same principles: support is where buyers are waiting to buy, resistance is where sellers are waiting to sell.

The truth is, learning this isn’t difficult if you understand the principles. However, applying it in real trading requires experimentation and observing actual market prices. Demand and supply are key to reading the market, and if you master this, you will understand why prices move the way they do.