Whether stock prices go up or down really depends on supply and demand.

To understand how market prices move, you need to know these two forces: Demand (the desire to buy) and Supply (the desire to sell). These two forces are the true determinants of price, not anything else.

What traders need to know: Stock prices result from the balance of buying and selling forces

When you see a stock chart that keeps rising, it means that demand (the desire to buy) exceeds supply. Conversely, if the stock price declines, it indicates that supply (the desire to sell) is dominating the market.

Importantly, the true price occurs at equilibrium, which is the point where demand and supply are equal. At this point:

• The price is unlikely to change much until new factors intervene.

Understanding Demand (Demand)

Demand is the desire to purchase goods or services at various price levels, governed by the simple Law of Demand:

When price decreases → demand increases
When price increases → demand decreases

Why is this? Because of two effects:

Income Effect (Income Effect): When prices fall, you retain more money from your previous purchases, allowing you to buy more.

Substitution Effect (Substitution Effect): When prices drop, this product becomes a better choice compared to similar products.

Other variables affecting demand in financial markets include:

• Investors’ income
• Prices of other assets
• Investors’ tastes and preferences
• Number of investors in the market
• Future price expectations

Understanding Supply (Supply)

Supply is the desire to sell goods or services at various price levels, with the following principles:

When price increases → supply increases
When price decreases → supply decreases

The essence of the supply force is that at higher prices, sellers are willing to sell more because their revenue increases. When prices are low, sellers tend to slow down or reduce sales.

Variables influencing supply include:

• Production costs
• Prices of alternative products that producers can make
• Number of competitors
• Technology
• Future price expectations

Equilibrium (Equilibrium) - The price-determining point

Equilibrium occurs where demand and supply curves intersect. At this point:

• Quantity demanded = Quantity supplied
• Price tends to remain stable

If the price rises above equilibrium, a (Surplus) occurs, causing prices to fall back toward equilibrium.

If the price falls below equilibrium, a (Shortage) occurs, pushing prices back up to equilibrium.

Factors affecting demand and supply in financial markets

Demand side (: Factors that create buying pressure:

• Macroeconomic conditions: When interest rates are low, investors tend to seek returns in the stock market, increasing demand.
• Liquidity in the financial system: More money flowing in increases investment demand.
• Investor confidence: Positive news and good earnings motivate investors to buy more stocks.

) Supply side ###: Factors that create selling pressure:

• Company policies: IPOs or issuing new shares increase supply.
• Market conditions: Negative news or poor earnings cause investors to sell.
• Regulatory controls: Policies affecting costs or imposing restrictions.

Demand and supply in trading: Demand Supply Zone

Skilled traders use this concept in Demand Supply Zone technical analysis, which is based on the principle:

When prices move rapidly (up-run or down-run), it indicates that demand or supply is out of balance. After such moves, prices often enter a zone of consolidation (consolidation) to find a new equilibrium point.

( Trading patterns using Demand Supply Zones:

1. Drop-Base-Rally )DBR### - Downtrend has issues:

• Rapid decline (Drop) indicates excess supply
• Entering the zone of balance (Base) slows selling
• Price rebounds (Rally) as buying pressure overtakes

2. Rally-Base-Drop (RBD) - Uptrend has issues:

• Rapid rise (Rally) indicates excess demand
• Entering the zone of balance (Base) slows buying
• Price drops (Drop) as selling pressure overtakes

3. Rally-Base-Rally (RBR) - Uptrend continues:

• Price rises (Rally)
• Enters the balance zone (Base) temporarily
• Continues upward (Rally) as demand returns

4. Drop-Base-Drop (DBD) - Downtrend continues:

• Price drops (Drop)
• Enters the balance zone (Base) temporarily
• Continues downward (Drop) as supply dominates

Applying this concept in fundamental analysis

Any stock or financial asset is a commodity, so price movements are driven by demand and supply just like other goods.

But the differences are:

• Demand in stock markets comes from earnings forecasts, company growth, or positive news.
• Supply in stock markets comes from shareholders deciding to sell, IPOs, or capital increases.

When good news comes out, investors want to buy more (demand increases). The problem is… there are no sellers or too few, so prices spike.

Conversely, when bad news appears, investors want to sell (supply increases), but there are no buyers, so prices plummet.

Technical analysis: Price Action tells a story

(Candlestick) shows the battle of forces:

• Green candle ###Close > Open( = Demand wins, buyers are strong
• Red candle )Close < Open( = Supply wins, sellers are strong
• Doji )Close ≈ Open( = Indecision, direction unclear

)Support(:
A level where demand is waiting; investors think the price is low enough to buy.

)Resistance###:
A level where supply is waiting; investors think the price is high enough to sell.

Key points investors must remember

1. Stock prices do not go up or down by luck; they depend on the balance of buying and selling forces.

2. Understanding demand and supply helps you better predict price directions.

3. Successful traders often combine this concept with technical analysis to make decisions.

4. There is no perfect rule, but understanding these fundamentals helps you interpret charts and analyze markets effectively.

In summary, demand and supply are the foundation of successful investing. Continuously studying and applying this to real price charts will ultimately help you become a skilled trader.