Why do stock prices move? Understand the clear principles of supply and demand.

Whenever you look at stock price changes, have you ever wondered what drives them? The answer lies in a simple yet powerful economic principle - supply and demand. This concept is not only fundamental to price setting but also a tool used by professional traders to forecast market movements every day.

Most Investment Problems Come from a Lack of Understanding of Basics

First, let’s understand the true meaning.

Demand is the desire to buy goods or services at various price levels. When plotted on a graph, it forms a line showing the relationship between price and quantity - called the Demand Curve. Each point on this line tells us how much buyers want to purchase at a certain price or the maximum price they are willing to pay.

Supply Conversely, is the desire to sell goods or services. The Supply Curve shows the quantity sellers are willing to offer at each price level, including the lowest price they are willing to accept.

These two basic laws explain everything:

Law of Demand: When prices go up, the quantity demanded by buyers decreases. When prices go down, demand increases. This inverse relationship results from two effects: the Income Effect ( - when prices fall, your money has more value, so you can buy more; and the Substitution Effect ) - when the price of this good drops, consumers tend to buy it instead of other goods.

Law of Supply: When prices rise, the quantity sellers are willing to offer increases. When prices fall, supply decreases. This direct relationship makes sense—who would want to sell cheaply if they can get a higher price?

What is Market Equilibrium and Why Is It Important?

In your world, just like ours, investing is not about prices being set where one side wants only one thing, but where demand equals supply - called Equilibrium (.

At this equilibrium point:

• Quantity demanded by buyers = Quantity supplied by sellers
• The resulting price tends to remain stable )—unless new factors intervene(

Why is this? Think about it:

If the price is above equilibrium: Sellers want to sell more, but buyers want to buy less, leading to surplus. Sellers are forced to lower prices, and the price returns to equilibrium.

If the price is below equilibrium: Buyers want to buy more, but sellers are unwilling to sell at that price, leading to shortages. Buyers are forced to pay higher prices, which pushes the price back to equilibrium.

In Financial Markets, What Factors Influence Them?

Stock markets are more complex than goods markets because demand and supply depend on many factors.

Drivers of Demand:

• Macroeconomic environment )Economic growth, inflation, interest rates( - low interest rates make stocks more attractive
• System liquidity - excess cash encourages investment
• Market confidence - good news boosts buying

Factors Affecting Supply:

• Corporate policies - share buybacks reduce available shares; capital increases add to supply
• New IPOs - increase the number of shares in the market
• Regulations - restrictions on large shareholders selling

How to Use Demand and Supply in Practice?

)Fundamental Analysis(

Investors see stocks as representations of company value. Demand increases when investors expect strong growth. Good performance stimulates demand, while bad news can increase supply.

)Technical Analysis###

Traders use various tools to measure the “strength” of each side:

1( Candlestick )Candle Stick###:

• Green = close > open = demand wins, price likely to rise
• Red = close < open = supply wins, price likely to fall
• Doji = close near open = indecisive, no clear dominance

2( Market Trend )Trend):

• Making new highs = strong demand
• Making new lows = strong supply
• Moving sideways = no clear winner

3( Support & Resistance:

• Support = a price level where buyers are waiting, so price tends to bounce up
• Resistance = a level where sellers are waiting, so price struggles to go higher

Professional Tool: Demand Supply Zone Technique

Elite traders look for points where price “runs” up or down rapidly and then pauses in a small range before breaking out in the same direction.

)Scenario 1: Continuous Rally )Rally-Base-Rally / RBR(

Price rises sharply, sellers start to appear, price pauses in a range, then good news comes in. Buyers win, price breaks out upward and continues → traders buy at the breakout point.

)Scenario 2: Continuous Drop )Drop-Base-Drop / DBD###

Price drops sharply, buyers step in, price pauses, then bad news hits. Sellers dominate, price breaks below the range and continues down → traders sell at the breakout point.

(Scenario 3: Reversal from Uptrend )Rally-Base-Drop / RBD###

Price makes a new high, signals a reversal when it breaks below the lower boundary of the range → traders sell and set stop-loss above.

(Scenario 4: Reversal from Downtrend )Drop-Base-Rally / DBR###

Price plunges, signals reversal when it breaks above the range → traders buy and set stop-loss below.

Which Factors Are Overwhelming and Can Change the Market?

Both demand and supply are not fixed; they change according to various factors:

Demand Side:

• Seasonality - demand for certain goods varies over time
• Government policies - stimulate or slow consumption
• Technology - innovations create or replace demand
• Psychology - consumer confidence

Supply Side:

• Natural disasters and weather - affect production capacity
• Taxes and regulations - impact costs
• Exchange rates - crucial if importing raw materials
• Access to capital - necessary for expansion

Summary to Remember

Demand and supply are not just textbook concepts but mechanisms that drive daily market movements, whether in stocks, crypto, or other goods.

Understanding the laws of demand and supply helps you:

1. Comprehend why prices change
2. Forecast future movements
3. Make timely buy/sell decisions

But knowing alone is not enough—practice analyzing real price charts regularly. Observe how these forces manifest constantly until you can instinctively sense them—that’s the mark of a professional trader.