When stock prices go nowhere, do you know what is happening?

Whenever we see a stock increase rapidly or drop immediately, we might think it’s due to good or bad news. But in reality, the driving force behind price movements is the hidden forces in the market—demand and supply.

This is a fundamental principle that economists have used for hundreds of years. Now, investors and traders are applying it to more accurately time their buy and sell decisions.

What are demand and supply?

In the market, there are two main forces at play:

Demand is the desire to buy. When more buyers enter the market, they are willing to pay higher prices to acquire the stock. It’s like an auction where the highest bidder wins. Supply is the desire to sell. When more sellers are present, they tend to lower prices to sell their shares.

These two sides have opposing goals: buyers want lower prices, sellers want higher prices. When they meet, a “balance” is created—an acceptable price level for both parties.

When does demand increase?

It’s not just the price that changes; several factors cause buyers to flood into the market:

• Macroeconomic factors - When the economy improves, people have more money to invest. When interest rates are low, money in banks isn’t attractive, so people shift to buying stocks.
• Confidence and news - Good news, such as increased profits or major projects, prompts investors to buy quickly.
• Liquidity - When there is abundant money circulating in the market, people are ready to buy.

Conversely, when negative news emerges or future prospects look bleak, buyers tend to hold back.

When does supply increase?

Sellers have their own reasons:

• Companies raising capital - When a company needs funds, it issues new shares, increasing the total number of shares.
• Companies with low profits - Existing shareholders who are disappointed may start selling off, leading to heavy selling pressure.
• New regulations - When the government enacts unfavorable rules, investors rush to sell.

Price moves because these two forces struggle

Imbalance between demand and supply causes price fluctuations:

When demand wins - Many buyers are willing to pay higher prices, causing prices to surge. Candlesticks turn green, or the volume of shares sold decreases rapidly.

When supply wins - Many sellers are eager to lower prices, causing prices to drop. Candlesticks turn red, or the trading volume is high.

When in equilibrium - Both sides are balanced, and prices fluctuate slightly around a certain level. This is called a “doji” (Doji), indicating uncertainty about the next move.

What should investors look for in the real market?

It’s not about just waiting for prices to move randomly. Smart investors try to read the signals of demand and supply:

1. Look at support and resistance levels

Support (Support) is the level where many buyers are ready to buy. When the price drops to this point, it often bounces back because buy orders are waiting.

Resistance (Resistance) is the level where many sellers are ready to sell. When the price reaches this point, it often gets pushed down due to selling pressure.

2. Look at trading volume

If the price rises but trading volume isn’t heavy, it indicates genuine demand. The selling pressure isn’t strong. Conversely, if the price rises with huge volume, it might be a “fake” breakout designed to lure others in, then the big players exit with profit.

3. Look at the trend

If the price makes new highs consistently, demand is still pushing upward. If it makes new lows repeatedly, supply is increasing.

Examples of using Demand Supply Zones in trading

This technique, called Demand Supply Zone, is used to catch turning points:

Scenario 1: Strong rally (Rally) - forming a base (Base) - then breaking higher (RBR)

The price surges, then consolidates slightly. New buyers waiting on the sidelines jump in, pushing the price higher. Traders can buy at the breakout of the previous resistance line.

Scenario 2: Sharp drop (Drop) - forming a base (Base) - then breaking lower (DBD)

The price falls heavily, pauses briefly, then sellers return strongly, pushing the price down further. Traders can sell at the breakout of the previous support line.

The next two scenarios are reversals:

Scenario 3: Price drops (Drop) - forming a base (Base) - then bouncing up (Rally) = DBR

Buy at the breakout above the upper boundary of the zone.

Scenario 4: Price rises (Rally) - forming a base (Base) - then reversing down (Drop) = RBD

Sell at the breakout below the lower boundary of the zone.

Demand and supply help make smarter investment decisions

This principle isn’t some mysterious art; it’s the natural law of markets. Prices always move according to buying and selling demand. When you understand which side is dominant, you can better time your trades.

Most importantly, do your homework and observe the real market. Knowledge alone isn’t enough; continuous learning and practice are key to accurately reading demand and supply in the market.