Demand is the mechanism that drives asset prices - the key to understanding market movements

In the world of investing, nothing is more important than understanding how prices are formed. Demand, or the desire to buy and sell, acts as a machine that drives price changes in stock markets worldwide. Many experienced traders who achieve consistent profits understand this fundamental principle and can apply it effectively.

Real Market Phenomena: Why Do Prices Rise or Fall?

Before diving into theory, observe what happens in the stock market first. When good news comes out, investors buy stocks in large quantities—this is when demand increases, and prices rise. Conversely, during negative events, shareholders rush to sell, demand decreases, and prices drop. This is how buying demand and selling pressure work.

Demand is (Demand) - Buying Power and Desire

Demand is the desire to purchase goods or services at various price levels. When plotted on a chart, it forms a demand curve showing the relationship between price and the quantity buyers want.

Basic principle: Low price = high demand, high price = low demand.

The reasons lie in two factors:

Income Effect - When prices fall, your real money value increases, allowing you to buy more.

Substitution Effect - When this product becomes cheaper than similar products, people prefer to buy this instead.

Factors influencing demand include price, consumer income, substitute prices, tastes, number of buyers, and future price expectations. Additionally, seasons, government policies, and consumer psychology also play significant roles.

Supply is (Supply) - Selling Pressure and Offering Desire

Supply is the desire to sell goods at various price levels. The supply curve shows the quantity sellers are willing to offer at each price point.

Basic principle: High price = high willingness to sell, low price = low willingness to sell.

Why is that? Sellers are willing to produce and sell more when prices are high because profits are greater. Conversely, at lower prices, the motivation to sell decreases.

Factors determining supply include production costs, substitute prices, the number of sellers, technology, and future price expectations. Climate, tax policies, and access to capital also significantly influence supply.

Equilibrium (Equilibrium) - The Market’s Resting Point

Demand alone or supply alone cannot determine the price. When demand and supply curves intersect, that is the equilibrium point—the actual price and quantity in the market.

Why is this point stable?

If the price is above equilibrium, sellers produce more, but buyers purchase less → inventory builds up → prices are pushed down back to equilibrium.

If the price is below equilibrium, buyers want more, but sellers offer less → shortages occur → prices are pushed up back to equilibrium.

Demand and the Movement of Financial Markets

In financial markets, factors affecting demand are more complex:

Macroeconomic Factors: Economic growth, inflation rate, interest rates—all influence investment decisions.

Liquidity: The amount of money in the system—more money means higher demand for investments.

Confidence: Future economic outlook, corporate earnings, political stability—all impact buying or selling decisions.

For supply in financial markets:

Corporate Policies: Capital increases (more supply), share buybacks (reduce supply).

Initial Public Offerings (IPO): Adding new securities to the market.

Regulations: Rules that affect the ability to issue securities.

Demand and Fundamental Analysis

Fundamental investors view stock prices as representations of a company’s value. When good news emerges—such as increased profits or expansion—demand rises—buyers are willing to pay higher prices or buy more, while sellers hold back. The result: prices go up.

Conversely, negative news reduces demand—buyers hold back, sellers lower prices → prices decline.

Demand and Technical Analysis

Traders often use demand as an indicator of buying and selling strength, employing various tools:

( 1. Candlestick Analysis)

Green Candlestick (Close > Open) = Buying strength wins = Strong demand → Price likely to continue rising.

Red Candlestick ###Close < Open( = Selling strength wins = Strong supply → Price likely to continue falling.

Doji )Open ≈ Close( = Balance between buyers and sellers = Direction uncertain.

) 2. Trend Analysis(

Uptrend = Higher highs = Demand remains strong → Price likely to continue upward.

Downtrend = Lower lows = Supply remains strong → Price likely to continue downward.

Sideways )Range-bound( = Balance between buyers and sellers = Await new catalysts.

) 3. Support & Resistance###

Support = Price level where buyers tend to step in = When price reaches this point, it often reverses upward.

Resistance = Price level where sellers tend to step in = When price reaches this point, it often reverses downward.

Real Example: Demand Supply Zone - Trading Technique

Many traders use Demand Supply Zones to catch market turns by identifying points where price loses balance and waiting for a new equilibrium.

( Pattern 1: Reversal Upward )DBR - Demand Zone Drop Base Rally(

1. Price drops rapidly )Drop### = Excess supply
2. Price consolidates in a range (Base) = Buyers start to enter, selling pressure eases
3. Price recovers ###Rally( = Buying wins = Enter trades at breakout

Profit target: At previous resistance level
Stop loss: Below the base of consolidation

) Pattern 2: Reversal Downward (RBD - Supply Zone Rally Base Drop)

1. Price rises rapidly (Rally) = Excess demand
2. Price consolidates in a range (Base) = Sellers start to enter, buying pressure eases
3. Price reverses downward ###Drop( = Selling wins = Enter trades at breakout

Profit target: At previous support level
Stop loss: Above the resistance of the consolidation range

) Trend Trading: Rally Base Rally (RBR) - Continuing Uptrend

When demand remains strong, prices will not only reverse within the range but will break resistance and continue upward. This is because new positive factors come in, strengthening demand further.

Or: Drop Base Drop (DBD) - Continuing Downtrend

When supply remains strong, prices will not only reverse within the range but will break support and continue downward.

How to Use Demand in Investment Decisions

( Step 1: Observe trend and price structure Look at the chart and ask yourself: Where is the price heading? Is there a consolidation zone?

) Step 2: Identify Demand and Supply zones Check support and resistance levels and determine their locations.

Step 3: Wait for news or breakout

Wait for positive/negative news or for the price to break its range.

( Step 4: Enter trades

• Uptrend: Buy on resistance breakout, with stop loss below support.
• Downtrend: Sell on support breakout, with stop loss above resistance.

Summary

Demand is not just an economic concept; it is the language of the market. When you understand why people want to buy and sell, you can read the market more accurately.

Whether you are a fundamental analyst looking at news and earnings or a technical trader analyzing candlesticks and support/resistance, the Demand Supply principle remains fundamental.

More advanced techniques are built on this simple principle. Therefore, truly understanding demand is the first step toward learning how to invest wisely.