According to the law of supply: Why does supply and demand drive prices in the market?

In the world of investing, what drives stock prices is not just financial data, but the buy and sell pressures constantly colliding. This is what economists call supply and demand. This fundamental concept is applied in analyzing and forecasting the prices of various financial assets.

Supply and Demand: Basic Understanding

Buying demand (Demand) refers to the quantity of goods or services that buyers are willing to purchase at various prices. When prices decrease, the demand volume increases. Conversely, when prices rise, demand decreases.

Selling supply (Supply) refers to the quantity of goods or services that sellers are willing to offer at different prices. According to the law of supply, when prices increase, sellers will offer more. Conversely, when prices decrease, the quantity sellers are willing to offer decreases.

Equilibrium (Equilibrium) occurs at the intersection point of the demand and supply curves. At this point, price and quantity are stable because the quantity consumers want to buy equals the quantity sellers want to sell.

Applying Supply in Financial Markets

In stock and financial asset markets, understanding buy and sell pressures is extremely important.

Factors that cause changes in demand:

• Macroeconomic conditions: When the economy is growing well, investors tend to seek higher returns in the stock market, increasing demand.
• Money supply in the system: Increased liquidity often results in higher demand for risky assets.
• Investor confidence: Expectations about the future of organizations or the economy influence investment decisions.

Factors influencing supply:

• Capital increase policies or share buybacks: Capital increases raise the supply of shares, while buybacks reduce supply.
• IPO of new companies: Adds to the supply of securities in the market.
• Market regulations: Stock exchange rules influence the ability to offer securities.

Using Supply and Demand in Technical Analysis

Traders use these principles in various ways:

1. Candlestick Analysis (

Green candlestick )closing price higher than opening price( indicates strong buying pressure, while red candlesticks )closing price lower than opening price( indicate stronger selling pressure. Doji candles )opening and closing prices are close( suggest equal strength from both sides.

) 2. Support and Resistance Levels

Support ###Support( is a price level where buying pressure is waiting to enter, while Resistance )Resistance( is a level where selling pressure is waiting. Breaking through these levels indicates that one side has gained the upper hand.

) 3. Trend Tracking ###Trend Analysis(

When prices make new highs continuously, it indicates strong demand. Conversely, new lower lows suggest that supply is dominating.

Demand Supply Zone Technique for Trading Timing

Skilled traders often use the Demand Supply Zone technique to identify trading opportunities. This method focuses on finding points where demand or supply is excessive, leading to a change in trend.

) Reversal Trading ###Turning Point(

Demand Zone Drop Base Rally )DBR(: Occurs when selling forces push prices down rapidly, then prices pause within a range. When buying pressure returns and wins, prices break above the range and move upward. Traders can buy at the breakout point.

Supply Zone Rally Base Drop )RBD(: Occurs when buying forces push prices up rapidly, then prices pause within a range. When selling pressure returns and gains strength, prices break below the range and fall. Traders can sell at the breakout point.

) Continuation Trading ###Trend Continuation(

Rally Base Rally )RBR(: An uptrend continues when buying pressure remains strong.

Drop Base Drop )DBD(: A downtrend continues when selling pressure dominates.

Additional Factors in Financial Markets

Beyond fundamental factors, according to the law of supply, stock trading is also influenced by:

• Earnings and profit forecasts: Good news drives buying pressure; bad news triggers selling.
• Mergers and acquisitions news: Affect confidence and growth outlooks.
• Interest rate policies and inflation: Impact the attractiveness of risky assets.
• Management signals: Statements from top executives influence market expectations.

Summary

According to the law of supply and demand, we can understand how stock prices move. Learning how to read buy and sell pressures is a vital skill for traders and investors.

Although this concept may seem complex, technical analysis methods such as candlestick patterns, support and resistance levels, and trend analysis can help you see the hidden buying and selling forces behind price changes.

Consistent practice with real market prices will enable you to apply these principles effectively and develop into a smarter investor in the end.