Just thinking about what factors determine supply and demand might be something most investors overlook, even though they are the key to truly understanding the market.

Someone asked me why stock prices rise quickly or drop suddenly, and I replied that it’s about the balance between buyers and sellers, known as supply and demand. This is the core of all price movements.

Let’s look at a simple example. For instance, last March, the Hormuz Strait was closed, causing about 20% of the world's crude oil to disappear from the market. This was a situation where supply sharply decreased, while energy demand remained the same. The result was a rapid increase in prices. This is a real example of how factors influencing supply and demand impact the market.

When talking about factors affecting demand, the first thing to understand is macroeconomics. If interest rates are low, people tend to prefer investing in stocks. If the economy is growing well, company profits are good, leading to more people wanting to buy stocks. Another factor is liquidity in the financial system. The more money there is in the system, the more people want to invest in risky assets. Don’t forget investor confidence—if people believe the market will do well, they will buy heavily.

As for supply, factors influencing supply and demand in this regard include companies buying back their shares, which reduces the supply in the market. Conversely, issuing new shares increases supply. The listing of new companies also adds to supply. Additionally, regulations, tax policies, and production costs all affect supply.

What’s interesting is that when we see market equilibrium—that’s the point where the supply and demand lines intersect. At this point, price and volume tend to stabilize because if prices go up, sellers want to sell more, but buyers want to buy less, leading to excess supply and a price drop. Conversely, if prices go down, buyers want to buy more, but sellers want to sell less, leading to shortages and a price increase.

For investors, understanding these factors affecting supply and demand is useful for both fundamental and technical analysis. In fundamental analysis, we see price movements as driven by the demand to buy or sell the company. Good news attracts buyers; bad news causes sellers to exit.

In technical analysis, we observe buying and selling pressure through candlesticks. A green candlestick indicates strong demand; a red candlestick indicates strong supply. We also look at trends—if new highs are consistently made, demand remains strong; if new lows are made, supply remains strong.

There’s a technique called the Demand Supply Zone that many traders use. When prices rise sharply and then pause, if the price breaks through again, it shows demand is still strong. If instead the price plunges, it indicates supply has become strong again. Knowing this helps us time our trades more accurately.

In financial markets, the factors influencing supply and demand are complex, but once we understand the basic principles, everything connects. Macro factors, company news, government policies, technology, seasons, and confidence—all impact supply or demand.

What I’ve learned from years of trading is that whether it’s stocks, derivatives, or even digital assets, this principle applies to all. To profit, you need to learn how to read the buying and selling demand in the market, whether through fundamental data or candlestick analysis.

If you want to study this further, check out the actual asset prices on Gate. Seeing real data helps deepen your understanding more than just reading theories.