Recently, I saw someone ask about the meaning of demand and supply. To be honest, these are the fundamentals you need to understand if you want to navigate the financial markets, whether it's stocks, oil, gold, or digital assets.

Let's start with the basics: the meaning of demand and supply is the desire to buy and the desire to sell. It sounds simple, but in-depth, it’s the most important mechanism that drives prices.

Demand (Demand) is the desire to buy goods at various price levels. When prices decrease, people are willing to buy more. When prices increase, the desire to buy decreases. This is the basic rule called the Law of Demand. Supply (Supply) is the desire to sell. Sellers are willing to sell more when prices are high and less when prices are low.

Now, the key point is where the demand and supply curves intersect, called equilibrium. This point determines the actual market price. If the price rises above equilibrium, sellers will increase the quantity they sell, but buyers will buy less. Excess inventory will build up, pushing prices back down. Conversely, if the price drops too low, buyers want to buy more, but sellers reduce the supply. The product becomes scarce, and prices are pushed upward.

In financial markets, the meaning of demand and supply isn't much different. When the economy is doing well, investment demand increases. When interest rates are low, investors seek higher returns in the stock market. This is an increase in demand. At the same time, new companies going public (IPO) increase the supply of securities in the market.

Let's look at an example from a recent event: the Hormuz Strait was closed due to the Middle East conflict, causing about 20% of the world's crude oil to suddenly disappear from the market. This is a supply shock that drastically reduces supply, while energy demand (demand) remains. The result is a rapid surge in oil prices.

For traders, the meaning of demand and supply isn't just theory; it's a real analysis tool. The Demand Supply Zone technique involves identifying moments when prices lose balance—rushing up or plunging down—and then moving sideways to find a new equilibrium.

For example, a Demand Zone Drop Base Rally (DBR) occurs when prices fall sharply due to excessive selling (Drop), then move sideways within a range (Base). When buying strength returns, prices break above the range (Rally). Traders can enter on the breakout point. Conversely, a Supply Zone Rally Base Drop (RBD) happens when prices rise from excessive buying, but then selling pressure returns strongly, causing prices to fall below the range.

Understanding demand and supply helps us read the market better. When we see a large green candlestick, it indicates demand is winning. A large red candlestick shows supply is winning. A doji candlestick indicates that both sides are fighting equally.

Price trends also tell the same story: if prices keep making new highs, demand is strong; if prices keep making new lows, supply is winning; if prices fluctuate within a range, both sides are balanced.

Support and resistance levels are related to demand and supply as well. Support is the point where demand is waiting to buy because investors believe it’s a reasonable price. Resistance is where supply is waiting to sell because the price is starting to become expensive.

Finally, trend-following trading (Continuation) often occurs more frequently than reversals. When prices rise and then fluctuate within a range before breaking above resistance, it’s a Rally Base Rally (RBR) in an uptrend. Conversely, if prices fall and then fluctuate before breaking below support, it’s a Drop Base Drop (DBD) in a downtrend.

Understanding demand and supply, and knowing how to use them to read the market, is half of the success in trading. The other half is experimenting and learning from real market prices.