Understanding Market Mechanics: The Meaning of Demand and Its Importance in Investment Decisions

Why Investors Need to Understand Buying and Selling Pressure in the Market

If you’ve ever wondered why stock prices or digital assets sometimes surge and sometimes get pushed down, the answer lies in the most fundamental driving forces: demand (buying interest) and supply (selling interest)

This is not just a dry economic theory sitting in a book, but a real machine that drives price movements every second in the market. Whether you trade Bitcoin or stocks from any country, if you understand this mechanism deeply, you’ll be able to read the market better and make smarter investment decisions.

The Basics: Buying Demand and Selling Supply

###What does demand really mean?

Demand (Demand) is not just “people want to buy” in a simple sense, but the relationship between price and the quantity people are willing to buy. The lower the price, the more people want to buy; the higher the price, the fewer people want to buy.

When plotted on a graph, this creates a downward-sloping curve (Demand Curve) that shows us that at this price, this many people want to buy.

Why is this the case? There are two main reasons:

Income Effect (Income Effect): Lower prices = more money left in your pocket = more buying power

Substitution Effect (Substitution Effect): The price of this product drops while similar products are expensive → you want to buy this one more instead

###Supply: The other side of the equation

Supply (Supply) is what sellers are willing to offer. The higher the price, the more willing sellers are to sell because they think “this price is good enough.” Conversely, at lower prices, sellers withdraw and stop selling because it’s not profitable.

The supply curve (Supply Curve) slopes upward to the right, opposite to demand. This difference is what matters most.

###Where the price determines itself: Equilibrium (Equilibrium)

The actual market price is not set by one side alone but occurs at the point where the demand and supply curves intersect, called Equilibrium (Equilibrium)

At this point:

• The quantity people want to buy = the quantity sellers want to sell
• No surplus, no shortage
• Prices tend to hover around this point

However, as soon as there is any news (good news, bad news, or market expectations), this balance is disrupted, and the price searches for a new equilibrium.

Financial Markets: Where Demand and Supply Play a Game

In financial markets, this mechanism is more complex than just buying a house because many factors influence demand and supply, often interconnected.

###What increases buying demand (Demand):

• Low interest rates: When banks offer low savings interest, people are more willing to risk investing in stocks or crypto.
• Economic growth: Good corporate earnings → positive outlook → increased buying interest.
• Liquidity: Plenty of money in the system → funds available for investment.
• Confidence: Good news, FOMO feelings → people want to buy before missing out.

###What increases selling supply (Supply):

• Company capital increases: New shares issued → increased supply → downward pressure on prices.
• Share buybacks: Reduces the number of shares in the market → decreased supply → positive for prices.
• New IPOs: New companies entering the market → more assets available (increase in securities supply).
• Bad news: Company debt, poor earnings → people want to sell.

Applying to Trading: From Theory to Profit Making

###Fundamental perspective: Demand and supply = buying pressure - selling pressure

Stock prices do not rise or fall on their own; they result from investors’ perceptions of the company’s growth, profits, or decline.

• If analysts say “this company will grow 30%” → buying side strengthens → price rises.
• If they say “this company pays less dividends” → selling side gains strength → price drops.

This is the movement of demand and supply.

###Technical perspective: Reading buying and selling pressure from price

1) Candlestick (Candlestick)

• Green (Close > Open) = Buyers win → indicates strong demand
• Red (Close < Open) = Sellers win → indicates strong supply
• Doji (Open ≈ Close) = indecision, no clear direction

2) Market Trend (Market Trend)

• New highs continuously = strong demand → expect continuation upward
• New lows continuously = strong supply → expect continuation downward
• Moving within a range = indecision → wait for next signal

3) Support & Resistance (Support & Resistance)

• Support = price level where buyers are waiting = strong demand
• Resistance = price level where sellers are waiting = strong supply

Demand Supply Zone Technique: The Hard End Formula

The popular method traders use is Demand Supply Zone, which looks for moments when price begins to lose balance.

###Pattern 1: Drop-Base-Rally (DBR) - Uptrend

Simplified:

1. Drop = Sellers are full throttle, price drops sharply
2. Base = Price plunges too deep, buyers see value and start buying → price begins to move up
3. Rally = Good news arrives, buyers gather → price surges higher

Trading method: Enter buy when price breaks above the top of the Base with a Stop Loss below the bottom of the Base.

###Pattern 2: Rally-Base-Drop (RBD) - Downtrend

Opposite:

1. Rally = Buyers are frantic, price surges
2. Base = Price gets too high, sellers start to step in → price begins to move down
3. Drop = Bad news arrives, sellers gather → price continues to fall

Trading method: Enter sell when price breaks below the bottom of the Base with a Stop Loss above the top of the Base.

###Pattern 3: Rally-Base-Rally (RBR) - Continued Uptrend

In a clear uptrend:

1. Price rises (Rally)
2. Price consolidates at a level, hits resistance (Base)
3. Buying pressure returns, price rises again (Rally)

Traders can enter on a breakout above the resistance of the Base.

###Pattern 4: Drop-Base-Drop (DBD) - Continued Downtrend

In a clear downtrend:

1. Price drops (Drop)
2. Price consolidates at a level (Base)
3. Selling pressure returns, price drops further (Drop)

Enter on a breakout below the support of the Base.

Tips for Effective Use

1. Observe the background of movement: Not just the price, but also the trading volume. High volume = strong force; low volume = weak force.
2. Understand market structure: Different news types affect demand and supply differently. Good economic news often drives demand up, but sometimes it also raises interest rates, pulling money out of the market.
3. Not a magic indicator: Demand Supply Zones are not 100% accurate formulas. They are high probability setups, not certainty. Risk management is still necessary.

Summary: Market Representation

True demand is not just “people want to buy,” but the driving force that moves the market every second. Understanding its core helps you:

• Read the market deeply, beyond just relying on indicators
• Better predict price directions by observing buying and selling pressure
• Make smarter entry and exit decisions based on logical reasoning

Price is not random; it results from this mechanism. Once you understand it, you will see that price is the language of the market, and you can read it.