Understand that demand equals supply to forecast the direction of asset prices

Modern investors often look for tools to analyze the market. One effective method is studying the relationship between buying and selling pressures, which is a fundamental principle in economics explaining price movements—moving from theory to practical application in the real market.

Where do stock prices come from? The interaction between buyers and sellers

Before discussing supply equals demand, imagine a market scene where the left side investors want to buy more shares to gain returns, while the right side wants to sell to realize profits. At this point—if the analysis is correct—the stock price will adjust to a point where both parties are satisfied.

Demand (Demand) is the number of buyers eager to own and willing to pay.

Supply (Supply) is the volume of shares that sellers are willing to put on the market at various prices.

Plotting these two concepts on a chart, the demand curve slopes downward (as price increases, buyers reduce their quantity), while the supply curve slopes upward (as price increases, sellers increase their quantity). The intersection point of these two lines is called market equilibrium—the price accepted by the market.

Four reasons why prices constantly change

On the demand side(

Macroeconomic factors are the main drivers. When interest rates fall, investors shift funds from bonds to seek returns in the stock market, increasing demand.

Investor confidence also plays a crucial role. Good economic news or optimistic earnings forecasts cause demand for holding stocks to spike immediately.

Liquidity in the financial system encourages investment. When money flows into the system sufficiently, investors are more willing to buy risky assets.

) On the supply side###

Corporate decisions directly affect the number of shares floating in the market. When companies buy back shares, the total shares decrease, reducing supply and pushing prices higher. Conversely, issuing new shares increases the supply, putting downward pressure on prices.

Initial public offerings (IPO) increase the number of securities in the market, which can temporarily impact price equilibrium.

Regulations and restrictions from governing bodies can limit or expand the ability to offer securities, narrowing or widening supply.

Learning together: How do buy and sell pressures work?

When prices rise from the previous equilibrium level, what happens is: sellers see high prices and are willing to sell more, while buyers see high prices and become less willing to buy. The result is excess supply, which pushes prices back toward equilibrium.

Conversely, when prices fall below equilibrium: buyers see low prices and increase their buying, while sellers hesitate to sell. This creates excess demand, which pushes prices back up toward a new equilibrium.

These concepts tell us that demand equals supply always in the long run because markets have self-adjusting mechanisms.

How traders understand demand and supply

( 1. Recognize value, not just the number

On the chart, stock prices reflect the company’s market value )Market Cap###. Good earnings announcements cause demand to surge and prices to rise. Conversely, negative news or poor earnings forecasts increase selling interest, leading to price declines.

( 2. Learn gradually from candlestick patterns and support-resistance levels

Green candlestick )Close > Open### indicates “buying pressure wins”—buyers are strong.
Red candlestick (Close < Open) indicates “selling pressure wins”—sellers are strong.
Doji candlestick (Close ≈ Open) shows “both sides are equal”—no clear winner.

Support is an area where investors are willing to buy (aggregate demand).
Resistance is an area where investors are willing to sell (aggregate supply).

( 3. Use Demand Supply Zone techniques in trading

Technical traders use strategies called Demand Supply Zones after the price moves too far away from a certain level. Examples:

RBR )Rally-Base-Rally###—Price rises, consolidates in a range, then breaks above and continues upward. Signaling strong buying power.

DBD (Drop-Base-Drop)—Price drops, consolidates, then breaks below and continues downward. Signaling strong selling power.

Traders can enter trades when the price “breaks out” of the consolidation zone, setting stop-loss points to manage risk and lock in profits.

Demand and supply relate to company growth

When the economy is doing well, companies see opportunities in the market and are motivated to go public (supply factors). At the same time, investor confidence is high, and they want to hold more assets (demand factors). Usually, these two factors work together. Understanding this relationship helps investors see the market more comprehensively.

Things to remember

Demand equals supply is not just an economic formula but a lens that helps investors and traders see into the market’s “mind.”

Buy and sell pressures are general driving forces. If we can interpret them, it’s like reading the “market’s psyche,” making investment decisions more accurate.

Practicing constant observation of buy and sell pressures on price charts and applying these principles in real situations will turn knowledge from words or books into practical skills for market analysis and investing.