Factors Influencing Price Changes in the Financial Market: Supply and Demand Every Investor Must Know

When looking at the movement of stock prices or financial assets, what is often overlooked is the fundamental force that drives everything. That is the pull of (demand) and the push of (supply) battling in the market every second. Whether you are an economist or a market investor, everyone views this basic concept as a key to predicting price directions and making more accurate investment decisions.

Basic Meaning of Demand and Supply in the Market

Demand (Demand) - The market’s purchasing power

Demand is not just the desire to buy but the willingness to purchase goods or services at various price levels. When analyzing this concept as a graph, you get the (Demand Curve), which shows the relationship between price and quantity.

At different points along this line, it can be seen that higher prices tend to reduce the quantity people want, and conversely, this law results from two main phenomena:

Income Effect (Income Effect) - When prices fall, your “money” becomes more valuable, allowing you to buy more goods.

Substitution Effect (Substitution Effect) - When this good becomes cheaper compared to other goods, people prefer to choose it more.

Besides price, other factors also determine demand, such as consumers’ income, overall preferences (Preference), the number of buyers in the market, and future price expectations. Moreover, seasons, government policies, technological developments, and buyer confidence also directly impact demand.

Supply (Supply) - The market’s selling power

Supply is the willingness to sell goods or services at various price levels. When plotted as a graph, it produces the (Supply Curve), which shows a positive relationship between price and the quantity sellers are willing to offer.

Unlike demand, which has an inverse relationship, supply behaves similarly to price—when prices rise, sellers are willing to sell more because profits increase; when prices fall, they reduce the quantity offered.

Factors influencing supply include production costs, the number of competitors, technology used, prices of alternative products, future price expectations, climate conditions, tax policies, and exchange rate volatility, all affecting production capacity.

Equilibrium (Equilibrium) - The point where both sides meet

The actual market price does not result from demand or supply alone but occurs at the equilibrium point where the two lines intersect. At this point, the quantity consumers want to buy equals the quantity sellers want to sell.

When prices are above the equilibrium point, sellers have surplus stock, forcing them to lower prices. Conversely, when prices are below equilibrium, shortages occur, pushing prices upward. The oscillation back and forth until reaching this equilibrium is how markets find the “correct” price.

Demand and Supply in Financial Markets: Multiple Factors

Factors Driving Demand in Financial Markets

Financial markets are more complex than natural markets. Demand for securities or assets is influenced by multiple layers.

Macroeconomic signals - When the economy is growing well, people seek investment opportunities. Growth figures, interest rates, and inflation rates are key indicators. For example, low-interest rates encourage investors to jump into the stock market seeking returns.

Liquidity circulating in the system - The amount of money in the financial system is like blood flowing through the market. High liquidity often correlates with strong demand.

Investor confidence - This may be intangible but has enormous power. Good news, bad news, future projections—all influence investment decisions.

Factors Determining Supply in Financial Markets

Corporate policies - Stock buybacks reduce the number of shares in circulation (Reduce Supply), while issuing new shares increases the total.

New entrants (IPO) - When new companies go public, the total securities increase, which may cause short-term price changes.

Regulations and restrictions - Market rules such as the Silent Period (the period after an IPO when major shareholders are prohibited from selling) affect the tradable share volume.

Demand and Supply in Stock Price Analysis

Fundamental Perspective: Stock prices represent company value

Fundamental analysts (Fundamental Analyst) do not see changes in demand and supply as originating from the stock itself but from the forecasted performance of the company.

When good news about earnings, future growth, or restructuring comes out, buyers are willing to pay higher and higher prices. Sellers delay selling, causing prices to rise. Conversely, bad news causes buyers to withdraw and sellers to accelerate sales, leading to price drops.

Technical Perspective: Reading signals from candlesticks and resistance levels

Technical traders (Technical Trader) use various tools to observe buying and selling forces.

Candlesticks (Candlestick) - Green candles (closing higher than opening) indicate strong demand; red candles (closing lower than opening) indicate strong supply; doji (opening and closing are close) indicate uncertainty.

Trend (Trend) - Making new highs continuously shows demand dominance, while making new lows indicates supply dominance.

Support & Resistance (Support & Resistance) - Support is an area where buyers are waiting; resistance is where sellers are waiting. When prices break these levels, significant changes often occur.

Applying Demand Supply Zones in Trading

The Demand Supply Zone technique is popular because it captures the true essence of trading—real driving forces.

Example 1: Reversal from a decline (Demand Zone DBR)

Imagine the market is satisfied with a stock, and everyone rushes to sell. The price plunges (Drop). Below this level, strong buyers start to enter. The selling momentum slows, and the price enters a consolidation phase (Base). If good news or positive factors emerge, buying pressure breaks through the upper boundary, and the price rallies (Rally). Traders can enter positions at this breakout point with stop-losses set accordingly.

Example 2: Reversal from an uptrend (Supply Zone RBD)

Conversely, if the market rises rapidly (Rally) to a high price, sellers rush out. The price enters a base phase. If bad news or negative factors appear, selling pressure breaks below the lower boundary, and the price drops (Drop). Traders enter positions once the breakout occurs.

Example 3: Continuation (Continuation)

In fact, markets tend to continue rather than reverse. After a rise, the price may pause (RBR) before continuing upward, or after a fall, it may pause (DBD) before dropping further. Traders who understand these driving forces can identify signals and enter positions timely.

Summary

Demand and Supply are not concepts only for first-year students but are universal laws of trading in all markets—commodities, stocks, or currencies. Understanding which force is stronger is a skill that successful investors must learn.

However, theory alone is not enough; you must practice—observe real price charts, see actual changes—so that this knowledge becomes instinct, helping you make more confident investment decisions.