It is clear that asset prices do not move randomly. There are fundamental mechanisms driving everything, which is demand and supply, or the imbalance between demand and supply. From stock prices, energy prices, to digital assets, they are all controlled by the same mechanism.

Last March, the Hormuz Strait was closed due to the Iran war situation, causing 20% of global crude oil to suddenly disappear from the market. This is a classic example of what is called a supply shock. Oil prices immediately surged, not because demand increased, but because supply drastically decreased. Meanwhile, energy demand remained the same. The result is that demand and supply imbalance pushed prices to adjust.

So, what does demand and supply really mean from an investor’s perspective?

Demand is the desire to buy at various price levels. The basic rule is: higher prices → decreased demand; lower prices → increased demand. Why is this? Because when prices drop, our purchasing power increases (Income Effect), and the stock looks more attractive compared to other options (Substitution Effect).

Supply is the willingness to sell at various price levels. Its rule is opposite: higher prices → more willingness to sell; lower prices → less willingness to sell. The reason is clear: at higher prices, sellers make more profit; at lower prices, it’s not worth selling.

The point where prices actually settle in the market is the equilibrium point, where the demand and supply curves intersect. At this point, the quantity buyers want to buy equals the quantity sellers want to sell. Prices are thus stable.

But if prices rise above the equilibrium, excess goods appear. Sellers will have to lower prices to sell their stock, bringing prices back to equilibrium. Conversely, if prices fall below equilibrium, shortages occur. Buyers will compete by raising their bids, causing prices to rise.

In financial markets, demand and supply refer to the buying and selling forces that clash. Macroeconomic factors such as interest rates, inflation, and economic growth all influence demand. When interest rates are low, investors tend to buy more stocks because returns from savings are less attractive. On the supply side, companies repurchasing shares reduce the number of shares in circulation, while issuing new capital or IPOs increase the share count.

In fundamental analysis, when good news comes out, investors become hopeful, increasing demand. Sellers hold back, causing prices to rise. Conversely, bad news causes sellers to increase their selling volume, buyers hold back, and prices fall.

For technical analysis, tools like candlestick price action, trend lines, and support and resistance levels are all based on demand and supply. A green candlestick indicates buying dominance; a red candlestick indicates selling dominance; doji shows a balance between both sides.

The Demand Supply Zone technique involves identifying points where imbalance occurs between demand and supply. When prices move rapidly up or down, it indicates one side has overwhelming strength. Then, prices pause within a range called the base. When buying strength returns, prices break out upward (Rally Base Rally). Conversely, when selling strength dominates, prices break out downward (Drop Base Drop).

What’s important is that demand and supply refer to the balance between the two sides. This imbalance creates opportunities for traders. Prices do not move randomly; they are the result of differences between what people want to buy and what they are willing to sell.

Learning to read these buying and selling forces reveals that the market is not mysterious. It is simply a demand and supply mechanism that operates repeatedly every day, every hour. You just need to learn how to recognize it.