Why do traders need to understand the relationship between buying and selling pressure

When looking at stock trading or financial asset trading, many people often overlook the most fundamental principle: the buying and selling forces driven by the demand of buyers and sellers. If you understand this principle well enough, you will be able to read the market and predict price movements more accurately.

Supply and Demand: The Two Forces Driving Financial Markets

In economic science, the supply and demand concept is considered fundamental because it explains where prices originate from.

Demand is the willingness to buy goods or assets at various price levels. When charted, you get the demand curve, which shows that: at lower prices, more people want to buy; at higher prices, fewer people want to buy.

Supply is the opposite: the quantity that sellers are willing to sell. At higher prices, sellers want to sell more; at lower prices, they want to sell less.

Understanding Buyer Behavior: Why Do Low Prices Attract Buying?

The reason why lower prices increase demand comes from two factors:

First, Income Effect – When goods become cheaper, your purchasing power increases. You can not only buy more of that product but also additional items.

Second, Substitution Effect – When a product becomes cheaper compared to alternatives, you switch to using that product. For example, if Product A’s price drops and becomes more attractive compared to Product B, which remains unchanged, most people will switch to A.

Besides price, demand also depends on other factors such as:

• Consumer income
• Prices of substitute goods
• Personal preferences
• Number of buyers in the market
• Future price expectations

Other Factors: Why Do Sellers Want to Sell More at Higher Prices?

For sellers, the principle is quite straightforward: higher prices mean higher profit per unit, so sellers are willing to produce or bring more goods to the market.

Other factors influencing sellers’ decisions include:

• Production costs
• Prices of alternative goods they can produce
• Number of competitors
• Available technology
• Future price expectations

Equilibrium: The Point Where the Market Stops Changing

Just demand or supply alone cannot determine the price. The actual price emerges at equilibrium – the point where the demand and supply curves intersect.

At this point, the quantity buyers want to buy exactly matches the quantity sellers want to sell. The price tends to stabilize.

What happens if the price is above equilibrium? Excess supply – sellers want to sell more, but buyers buy less. Result: the price is pushed down.

What if the price is below equilibrium? Excess demand – buyers want to buy more, but sellers supply less. Result: the price is pulled up.

The Stock Market Is No Different from a Natural Goods Market

Stocks are also commodities, simply representing a company’s shares. The stock price reflects how much people want to own that company.

When good news arrives: more buyers appear, demand increases, and the price goes up.

When bad news arrives: more sellers appear, supply increases, and the price drops.

Trading Based on Supply and Demand Principles

Remember: Support and Resistance lines are the forces of buying and selling.

Support (Support) is the price level where strong buying is observed – many investors believe this is a good price to buy, creating demand that prevents the price from falling further.

Resistance (Resistance) is the price level where strong selling occurs – another group of investors sees the price as too high and sells, creating supply that prevents the price from rising further.

Demand Supply Zone: Advanced Trading Technique

This technique looks for base zones – areas where price fluctuates when buy and sell forces are balanced. Traders then wait for the price to break out (break out) from this zone.

Pattern 1: Demand Supply Zone Drop Base Rally (DBR)

Price drops sharply (Drop) due to excess supply, then breaks lower with buying interest. The price consolidates in a range (Base). If good news arrives, buying pressure returns strongly, and the price breaks up (Rally) from this range.

Pattern 2: Supply Zone Rally Base Drop (RBD)

Price moves up rapidly (Rally) due to strong demand, then adjusts lower with selling interest. The price consolidates in a range (Base). If bad news comes, selling pressure intensifies, and the price drops (Drop) from this range.

Continuation Trend Trading

Most of the time, prices do not reverse but continue in the same direction. When a small retracement occurs, the price will break out of the consolidation range and continue moving.

Uptrend: Rally → Base → Rally (RBR)

Price rises → pauses → breaks out upward

Downtrend: Drop → Base → Drop (DBD)

Price falls → pauses → breaks out downward

Candlestick Price Analysis: Demand and Supply in One Candle

Green Candle (Close > Open): Close is higher than open = buying force wins = demand barrier indicating bullish signals.

Red Candle (Close < Open): Close is lower than open = selling force wins = supply barrier indicating bearish signals.

Doji (Close ≈ Open): Close and open are close, indicating balance – no clear winner yet. The trend may reverse or continue depending on subsequent factors.

Key Points Traders Must Know

Demand and supply are not just economic theories; they are the key to understanding markets. Whether it’s the financial market, stock market, or commodity market.

When you can see where buying and selling forces are located, you will know where the price is likely to go. From there, making profits in trading is just about being on the right side of that movement.

Most importantly: practice analyzing candlestick prices, pay attention to data recording factors, and follow your system until it becomes second nature. Through repeated experience, you will become more intuitive.