Supply and Demand

In this article we gonna learn about how market works from a supply and demand perspective. It’s a dual-auction process, with price auctioning both up and down depending on which force is dominant at the time – supply or demand.

Just remember this 4 Important Points on which the whole market runs.

1. Price rises while demand is greater than supply,
   • and while those buyers are willing to pay higher prices.
2. Price rises until we run out of buyers,
   • or until supply increases sufficiently to absorb all the demand.
3. Price falls while supply is greater than demand,
   • and while those sellers are willing to sell at lower prices.
4. Price falls until we run out of sellers,
   • or until demand increases to the point it absorbs all the supply.

Below image points the 1st point, the black arrow shows price rising which shows buyers are more willing to pay higher prices i.e. demand is greater than supply.

Below image points the 2nd point, the rectangle blocks shows price is unable to go up i.e. supply increases sufficiently to absorb all the demand which shows buyers are running out.

Below image points the 3rd point, the black arrow shows price falling which shows sellers are willing to sell at lower prices i.e. supply is greater than demand.

Below image points the 4th point, the rectangle blocks shows price is unable to go down i.e. demand increases to a point it absorb all the supply which shows sellers are running out.

If we use the 4 points from above mark them in chart in the context of Supply and Demand we see the chart shown in below image. The red color zone is Supply from where the price falls and green color is where price rises.

The following chart shows price falling from supply and rising from demand.

That’s it for supply and demand in the context of Dual Auction. Will explore more on supply and demand zone in next Volume 2 : PRICE ACTION & S/R also on Support and Resistance with how to find those areas.

In next article we gonna conclude this “Volume 1 : INTRODUCTION” with Collective Market Sentiment.