Observing recent market movements, a key issue many investors often overlook is: what is the true demand, and how does it affect asset prices? This might seem like a distant economic theory, but in reality, it’s happening in the market every second.

Let’s look at the current situation. When the Hormuz Strait closes due to the war in Iran, crude oil that used to flow through this point, about 20% of the world’s supply, suddenly disappears from the market. This is a scenario where the supply or sellers vanish dramatically, while the demand for energy (demand) remains. The result is that oil prices soar uncontrollably. This is a real-life demonstration of how demand and supply work.

Demand is the desire to buy, while supply is the desire to sell. These two are not simply related. When prices increase, buyers often reduce the amount they want to purchase for two reasons: the money in their pockets becomes less (Income Effect), and other goods seem cheaper (Substitution Effect). Conversely, when prices rise, sellers tend to want to sell more because they can make higher profits.

However, demand and supply are not controlled solely by price. Investor confidence, future expectations, general news, government policies, and even new technologies all influence buying and selling behavior. For example, when a central bank lowers interest rates, investors tend to avoid bonds and instead buy stocks, which increases demand in the stock market and pushes prices higher.

In financial markets, the challenge is predicting how these factors will change. When a small company announces better earnings, investors are willing to buy shares at higher prices or in larger quantities. Sellers may stop selling and wait to see what happens next. The result is that stock prices rise. Conversely, when negative news emerges, buyers slow down, and sellers are willing to lower prices to sell off their holdings, causing prices to fall.

When we talk about equilibrium, it’s the point where the demand and supply lines intersect. At this point, prices and quantities tend not to change because if prices go up, sellers will sell more, but buyers will buy less, leading to inventory buildup and downward pressure on prices. Conversely, if prices fall, buyers will buy more, but sellers will sell less, leading to shortages and upward pressure on prices.

For traders and investors, understanding this principle is very useful for timing buy and sell decisions. There is a technique called Demand Supply Zone, used to identify points where prices lose balance and move toward a new equilibrium. When prices rise rapidly, it indicates strong demand; we might expect a correction and consolidation before a further upward move. Conversely, when prices drop sharply, it indicates strong supply; we might wait for prices to stabilize before deciding to buy at that level.

Using candlestick patterns to observe buying and selling strength is another method. Green candles (closing higher than opening) show buying dominance; red candles (closing lower than opening) show selling dominance; doji candles (opening and closing prices close together) indicate indecision between buyers and sellers.

If we can read these buying and selling forces well, we can better predict where prices are headed. That’s why studying demand and supply is crucial for investors, whether in stocks, energy, gold, or digital assets. This principle applies universally.

In today’s financial markets, understanding this helps us analyze situations more comprehensively—identifying trends, support and resistance levels, or waiting for entry and exit points. For those interested in tracking asset prices such as stocks, gold, oil, or cryptocurrencies, you can check out Gate, as it provides convenient real-time price tracking and analysis.