Understanding the Basics of Order Books, Depth Charts, Demand, and Buy and Sell Walls
Most exchanges will offer different ways to look at the order book (open buy and sell orders). This information is vital for finding entry and exit points. You’ll want to keep an eye on the order book, depth chart, and buy and sell walls.
Say that with me again one more time: order books, depth charts, and buy and sell walls; oh my!
These are some important keys to trading cryptocurrency. They are hardly the only thing you want to look at, for example learning to read charts is also a must, but they are still some important and simple to understand bread and butter keys to trading.
Here are some things to keep an eye on in terms of the order book:
- If your exchange offers a visual of the “order book” (for example a “depth chart“), then make sure to use that resource. You can at a glance see where “buy walls” and “sell walls” are (and more generally, where demand is). If you see a giant sell wall, and you want to sell, you will very likely want to place your sell order before the wall. Likewise, if you want to buy and see a “buy wall,” then place your buy order before the buy. TIP: Buy wall and sell wall describe large orders which buyers or sellers have to buy/sell through to move the price.
- If your exchange offers a list of buy/sell orders on the books, which they almost certainly will, you can use this information the same way you use the visualization noted above. However, this also has an extra benefit. By looking at individual orders you can get a better sense of how active the market is. Sometimes big buyers and sellers (“whales”) pop in and out of the exchanges. If you notice an order for a few hundred grand popping in and out, it could be a signal that things are about the get messy (you don’t know if they are going to try to push the price up or down, just that they could).
- In all cases, you can see if the price is moving up or down by looking at the order book just as well as you can by looking at trends forming on charts. Meanwhile, considering all this data together gives you even more ammo.
The bottom line: You can use the order books to get a sense of where demand is for certain prices. Demand represents both artificial buy/sell walls and real demand for given prices. People who have done in-depth analysis of support and resistance levels have likely loaded up the order books at certain points. Thus, using just the order books any trader can get a quick sense of what the price is likely headed (or at least how much demand there is at a certain price).
That is the primer, for more information watch the video below.
Buy/Sell Walls and Order Books – What You Need To Know.