Supply and demand rules: Why traders need to understand how stock prices move

When looking at stock prices moving rapidly up or down, have you ever wondered what causes these changes? It’s not just because we release news, but because of unseen forces that drive the movement—namely, (Demand) and (Supply).

This concept originates from economics, but in the world of trading and investing, it becomes a powerful tool for predicting price directions. If you understand these basic mechanisms well, you’ll be able to time your buy and sell decisions more accurately.

The Laws of Supply and Demand: The Balls Driving the Market

What is the (Demand Curve)?

In the demand market, it refers to the desire to buy a product, or in the financial market, the desire to buy stocks. Everyone tries to buy at lower prices and is willing to pay more when they recognize the stock’s value.

The law of demand tells us that: Low price → more people want to buy | High price → fewer people want to buy

Factors that influence demand are not limited to price alone:

• (Low interest rates encourage investors to seek returns in the stock market)
• Market confidence (When the economy grows, demand increases)
• News and events affecting company valuation

The (Supply Curve) and Production

Conversely, supply is the quantity of stocks sellers are willing to offer. Sellers want higher prices to sell and avoid lower prices.

The law of supply states that: High price → more sellers want to sell | Low price → fewer sellers want to sell

Factors determining supply include:

• Company decisions (Capital raising, going public, or share buybacks)
• Production costs and capacity
• Government policies and regulations
• Access to funding

Equilibrium: Where Buying Equals Selling

If demand exceeds supply, prices will rise until some sellers start to withdraw and want to sell off. At that point, the market reaches equilibrium—the price where buy and sell are balanced.

Conversely, if supply exceeds demand, (low prices, nobody wants to sell), leading to increased buying and rising prices until a new equilibrium is found.

Understanding this equilibrium helps you grasp why prices move: not randomly, but because of the forces of buying and selling searching for a mutually agreeable price level.

Viewing Stock Prices Through the Lens of Supply and Demand

( Fundamental analysis: Price reflects value

When good news is released, such as increased company profits, many investors want to buy )demand increases###, while sellers hold back (supply decreases) → prices go up.

Conversely, when bad news hits, people want to sell (supply increases), but demand drops (demand decreases) → prices fall.

This is why fundamental analysts (Fundamental Analyst) look for “imbalance”—when the market hasn’t yet priced in the right value, prices tend to adjust toward a new level.

( Technical analysis: Reading candlesticks and trends

Technical traders use )Candlestick### charts to see the battle between buying and selling forces:

Green candlestick (Close > Open) = Strong demand → Buyers win Red candlestick (Close < Open) = Strong supply → Sellers win Doji( )Open ≈ Close( = Balance between buy and sell → Await next move

If the price trend makes new highs repeatedly, it indicates demand dominance, and prices will continue upward. Conversely, if new lows form, supply dominance is at play, and prices will continue downward.

Demand Supply Zone: Advanced Timing Technique

Modern traders use Demand Supply Zones to identify when prices are about to change direction. There are two main scenarios:

) 1. Reversal (Reversal)

Demand Zone Drop-Base-Rally ###DBR(: Price drops sharply )Drop(, then forms a base )Base(, and reverses upward )Rally(—a signal that traders watch as a demand zone )area with high demand(, a buy entry point.

Supply Zone Rally-Base-Drop )RBD(: Conversely, prices rise significantly, then pause, and fall again—Supply Zone )area with high supply(, a sell entry point.

) 2. Trend Continuation (Continuation)

Rally-Base-Rally ###RBR( = Demand remains strong; prices continue upward Drop-Base-Drop )DBD( = Supply remains strong; prices continue downward

Traders time their entries when prices break out from bases and follow the existing trend.

Real Market Examples

Think of your favorite stock:

• Initial phase: Good news → Demand surges → Price runs up → High supply zone forms
• Middle phase: Small investors get impatient → Demand dries up → Price consolidates and forms a base
• Final phase: Bad news or market reversal → Supply dominates → Price drops

Timing this perfectly is the art of trading.

Summary: Why Knowing the Laws of Supply and Demand Matters

Whether you’re a long-term investor or a short-term trader, understanding demand and supply is a fundamental decision-making base. This concept helps you not only read candlestick charts but also understand the reasons behind price movements.

Learning the laws of supply and demand is not just for members; it’s about preparing yourself like in a game—you need to know the rules to win.

The stock market isn’t random. It’s a clash between two forces. When you know where to look for signals of this balance, your trading timing becomes clearer.