Why are stock prices moving so wildly? The secret behind it is supply and demand.

Everyone who has ever tried trading stocks or investing money has wondered why stock prices move the way they do. Sometimes they soar like rockets, sometimes they plummet to frightening lows, and then suddenly quiet down again without explanation. The answer hidden in that data is called supply and demand – two forces that make the global market move every second.

What drives stock price movements

Simply put, demand is the buying force, and supply is the selling force. These two forces are constantly colliding in the market, and the outcome of their clash determines the price. If more people buy than sell, the price goes up. If more people sell than buy, the price drops. But this phenomenon is not random; it follows underlying rules.

The buying force (demand) actually has reasons

When stock prices fall, many investors become more interested in buying because they think, “The price has dropped, this is a good buying opportunity.” This is a income effect – when prices decrease, your money can buy more. At the same time, those who bought at higher prices might change their minds and sell other assets still priced high to buy this cheaper stock. This is called the substitution effect – lower prices make the stock look more attractive compared to other goods.

Other factors that significantly influence demand include:

• News: When there’s news that a company will expand its business or increase profits, many new investors will start buying.
• Confidence: If the economy looks bright, interest rates are low, and market liquidity increases, people tend to invest more.
• Herd mentality: If resistance levels make people more confident or positive news appears, buying momentum can be strong that day.

The selling force (supply) derived from calculations

Conversely, when prices rise, sellers tend to increase their offering because they think, “Now is a good time to sell.” If a listed company decides to raise capital or issue new shares, it increases the supply in the market, providing more stocks for trading.

Factors that determine supply include:

• Cost: If production costs increase, sellers are less willing to sell at lower prices, keeping prices high.
• Competition: New competitors entering the market increase supply.
• Policies: New regulations or management changes can limit production or raise costs.

When both forces meet – price equilibrium

Imagine if only buyers are active; prices would rise until they reach a peak and then suddenly reverse. When prices get too high, sellers start thinking, “Time to sell,” and increase their offerings. When supply exceeds demand, prices begin to fall.

Similarly, if prices drop too much, buyers come in with more demand, quickly absorbing the supply, and prices rebound.

The point where the two forces balance ( the quantity demanded equals the quantity supplied ) is called equilibrium. At this point, prices tend to stabilize because no force is strong enough to push the price further.

Hierarchy of forces in the financial markets

In investing, demand and supply are not just surface phenomena; they are driven by deeper underlying factors:

Demand side:

• Macroeconomic conditions ( When the economy is good, people invest more )
• Interest rates ( Low interest rates attract money into the stock market )
• Money liquidity ( When there’s plenty of money in the system, people are more willing to invest in risky assets )
• Investor confidence ( During fears of a pandemic, people tend to sell to hold cash )

Supply side:

• Company policies ( Share buybacks vs. new capital issuance )
• New listings ( IPOs increase supply )
• Regulations ( Any new rules or management changes can affect production and costs )

These factors often work interconnectedly. For example, when the economy is strong and companies are profitable, they tend to raise capital, which increases supply. A deep understanding of these market forces is valuable for investors.

How traders utilize this knowledge

1. Fundamental perspective – when prices tell the story of the company

Long-term investors don’t focus solely on buy and sell forces. They see rising prices as a sign that the market expects the company to grow and generate more profits. Conversely, falling prices indicate investor concerns about the company’s issues.

Therefore, good earnings reports boost demand and push prices higher. Negative news triggers selling pressure and causes prices to decline. The company’s intrinsic value naturally sets the level of price movement.

2. Technical perspective – when charts reveal secrets

Technical experts use Demand and Supply Zones to interpret signals on price charts by observing candlesticks (open, close, high, low) to gauge the strength of buying and selling forces:

Green candlestick (close higher than open) = Strong buying pressure, price likely to continue upward

Red candlestick (close lower than open) = Selling pressure, price may continue downward

Doji (open and close are equal) = Balance, neither side is strong; be cautious and look for further signals

3. Using support and resistance levels

Support (Support) is a price level where investors trust the price is reasonable and want to buy. When the price reaches this point, buying often increases to prevent further decline.

Resistance (Resistance) is a level where investors believe the price is high and want to sell. When the price hits this level, selling pressure appears to slow down further advances.

Trading strategies based on these concepts

Scenario 1: Reversal (Reversal)

Drop Base Rally (DBR) – Price drops quickly, sellers exhaust their supply (supply exhausted), then buyers step in, and the price reverses upward.

• Demand Zone Drop Base Rally: Price plunges, pauses to form a base, then moves up.
• Entry: When the price breaks above the upper boundary of the base (breakout)

Uptrend: Price runs high, buyers tire out (demand diminishes), then sellers become active, and the price reverses downward.

• Supply Zone Rally Base Drop: Price rises, pauses to form a base, then drops.
• Entry: When the price breaks below the lower boundary of the base (breakdown)

( Scenario 2: Continuation )Continuation(

Upward continuation: Price keeps rising, pauses briefly, then continues upward.

• Rally Base Rally (RBR): Price runs up, pauses, then runs up again.
• Buy signal: When the price breaks above the resistance of the base, the upward trend is likely to continue.

Downward continuation: Price drops sharply, pauses briefly, then continues downward.

• Drop Base Drop (DBD): Price falls, pauses, then falls again.
• Sell signal: When the price breaks below the support of the base, the downtrend is likely to persist.

Real market battle

Imagine a real scenario: Company A announces better-than-expected earnings. Buying pressure floods in, and the price continues rallying for a week )rally###. As the price rises, long-term investors who bought at lower prices start to take profits, creating a resistance level (resistance).

New buyers still want to enter, but the volume begins to decrease. The two sides clash, causing the price to pause and form a base (base formation). Additional news emerges that the company will expand its factory, strengthening buying interest. The price breaks through the resistance of the base and continues upward (second rally).

This is the Demand Zone RBR pattern – traders who recognize this signal will attack with sell orders when the price breaks resistance, taking profits confidently.

Key takeaways

Demand and supply are not just economic terms; they are mysterious forces that drive the market every second. Understanding why prices go up and down is the key to making smarter investment decisions.

Whether you are a long-term investor or a short-term trader, studying this concept seriously and applying it to real market data will help you read market signals better because price never lies. It only reveals the truth of the battle between buying and selling forces.