I just noticed that many people are still confused about the concepts of demand and supply, even though they are very important basics for understanding price movements. Whether it’s stocks, gold, oil, or even digital assets, let’s take a look at how this concept works.

Simply put, demand is the desire to buy, while supply is the desire to sell. When more people want to buy, prices go up. When more people want to sell, prices go down. It’s only natural.

But what’s interesting is that when we go a little deeper, we see that the law of supply doesn’t operate exactly the same way as demand. When prices rise, sellers tend to want to sell more because profits will be higher—this is natural. Meanwhile, demand works in the opposite direction: as prices rise, buyers tend to reduce the quantity they want to buy.

The impact of price changes has two sides. The first is the income effect: when prices fall, your money becomes more valuable, so you can buy more. The second is the substitution effect: when this product becomes cheaper compared with other products, people switch to buying this one instead of the old one.

However, demand and supply don’t exist on their own; many factors affect them, such as buyers’ income, price expectations in the future, preferences, and even new technologies, all of which can influence buying demand.

In fact, the prices that occur in the market are not caused by demand or supply alone, but by the point where the demand curve and the supply curve intersect. This is called equilibrium. At this point, prices tend to stabilize, because if prices rise above this point, inventories increase, which pushes prices down; and if prices fall below this point, shortages occur, which pushes prices up.

In financial markets, this is a bit more complex, because there are macro factors such as economic growth, interest rates, liquidity in the system, and investor confidence—all of these affect demand. As for the supply of securities, it depends on companies’ decisions, such as share buybacks, capital increases, or even an IPO.

When you enter the stock market, stock prices represent the demand for that company’s business—not just for a single share. When investors think the company will grow well, they want to buy more and are willing to pay higher prices. On the other hand, if the news is bad, sellers want to sell more and are willing to reduce the price.

Technically, traders often use Price Action to observe the clash between buying and selling forces. Green candles indicate that demand wins, and red candles indicate that supply wins. But if it’s a doji, it means both sides are equal—no one knows which way the market will go yet.

Looking at price trends can also help. When price keeps making new highs, it shows that demand is still strong. When price keeps making new lows, it shows that supply is decisive. But if price moves within a range, it means both sides are about equal.

Support and resistance are also important. Support is usually a level where buyers are waiting to buy, because they believe that price is reasonable. Resistance is a level where sellers are waiting to sell, because they think the price has started to get expensive.

A popular Demand Supply Zone technique is to look for moments when price loses balance and moves quickly, then consolidates in a range. When new factors appear, price will break out of that range and continue to run.

The first pattern is DBR, or Demand Zone Drop Base Rally. It happens after excessive selling. Prices plunge, then consolidate within a range. When buying pressure returns, prices run upward again, and traders can enter at the breakout point.

The second pattern is RBD, or Supply Zone Rally Base Drop. It occurs after excessive buying. Prices rally, then consolidate within a range. When selling pressure returns, prices drop sharply, and traders can enter at the lower breakout point.

But most of the time, price tends to follow the ongoing trend more than RBR. An uptrend continues—prices keep rising, consolidate in a range, and then rise again. DBD is a continuous downtrend: prices keep plunging, consolidate in a range, and then plunge again.

In summary, demand and supply aren’t that difficult, but you have to take action and look at the real prices to see the bigger picture more clearly. Once you understand how the laws of supply and these principles work, your investment decisions will be much better grounded.