Supply and Demand Trading Concepts

If you can imagine the stock market is a mall where each store represents a stock (ticker) with their own inventory and pricing models, then you are on your way to understanding how big banks and market makers move these markets. For retail traders, the concept of how a price moves is hard to fathom, but it is as simple as when supply is low and the demand is high, the price goes up, and when supply is high and demand is low, the price goes down. By controlling the supply, big banks have full control over pricing. After all, they do not have the urge to buy or sell like a retail trader. They simply wait for when it is most profitable for them.

In stock trading, supply and demand refer to the forces that determine the price of a stock based on how much buyers are willing to pay (demand) and how much sellers are willing to sell (supply). 

Here's a breakdown of how this works:

Demand in Stock Trading

• What it means: Demand represents the desire of investors to buy a      particular stock.
• High demand: If more investors want to buy a stock (bullish sentiment), they are often willing to pay a higher price. This pushes the stock price up.
• Low demand: If fewer investors are interested in buying the stock, prices may stagnate or decrease as sellers lower prices to attract buyers.

Supply in Stock Trading

• What it means: Supply refers to the quantity of a stock available for sale at a given price.
• High supply: If many investors are selling a stock (bearish sentiment), the stock's price tends to decrease as sellers compete to attract buyers.
• Low supply: If fewer shares are available for sale, prices may increase as buyers compete to acquire the limited stock.

Interaction Between Supply and Demand

• Equilibrium Price: This is the stock price where the quantity of shares buyers want to purchase equals the quantity sellers are willing to sell.
• Shifts in Equilibrium: Changes in market conditions, news, or investor sentiment can shift the supply or demand curve, causing stock prices to rise or fall.

In the world of business, there are many factors that influence supply and demand. Below are 4 key factors that are taught in business schools across the world, but be sure to read on because the real substance is below these 4 factors.

• Company performance: Strong earnings reports or positive news about a company can increase demand for its stock.
• Market sentiment: General optimism or pessimism in the market affects buying and selling behavior.
• Economic indicators: Interest rates, unemployment, and inflation can impact investor confidence and behavior.
• External events: Political developments, natural disasters, or global crises can influence supply and demand.

Now that the business school factors are considered above, how do you rationalize the price movement when company performance has not change, the market sentiment is the same, there’s no significant economic news, and no external events? These are the laws of supply and demand at work under the control of big banks and professional market makers. They manipulate the supply to move the price and create a market, and in the process they do it to the detriment of the retail traders. Understanding supply and demand dynamics is crucial for stock trading, as it helps traders anticipate price movements and make informed decisions.

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