Since studying economics, many people have probably heard the terms "demand and supply," but what do they really mean, and how are they related to investing? Some people are quite confused.

Demand refers to the desire to buy goods or services at various prices, while supply is the willingness to sell those goods at different prices. When we plot the relationship between price and quantity, we see that the demand curve tends to slope downward because as prices increase, people buy less; conversely, when prices decrease, demand increases. On the other hand, the supply curve tends to slope upward because sellers are willing to offer more when prices are high.

What’s interesting is that the actual market price is determined by the equilibrium point, where the demand and supply curves intersect. If the price is above this point, there will be excess inventory, forcing sellers to lower prices. If the price is below, shortages occur, causing prices to rise. The market system works automatically to find this equilibrium.

In financial markets, demand refers to the desire to buy various assets, such as stocks, influenced by factors like interest rates, liquidity in the system, and investor confidence. When interest rates are low, investors tend to seek higher returns in the stock market, increasing demand. Stock supply is affected by corporate policies, such as share buybacks or issuing new shares.

From an investment perspective, demand is the willingness of investors to hold an asset, driven by expectations about company performance and growth. Good news leads buyers to be willing to pay higher prices, while sellers hold back, pushing prices up. Conversely, bad news causes buyers to hesitate and sellers to lower prices, leading to declines.

Technical analysis uses demand and supply concepts through tools like candlestick charts. For example, a green candle (closing price higher than opening) indicates strong demand, while a red candle (closing lower than opening) indicates strong supply. Identifying support and resistance levels also reflects demand and supply zones—support being where buyers tend to step in, and resistance where sellers are waiting.

The Demand Supply Zone technique is popular for timing trades by identifying points where the price loses balance and moves sharply up or down. When the price consolidates within a range, traders can enter positions when the price breaks out of that range.

Understanding demand means grasping how prices move, whether for long-term investing or short-term trading. Its importance lies in helping us explain and predict price changes. If you can identify when demand increases or decreases, and when supply shifts, you'll have an advantage in making investment decisions.