Understanding Buy and Sell Walls in Crypto – A Complete Guide
In the crypto market, whales can deploy a considerable amount of capital in trading and cause a significant impact on buy or sell orders. When multiple buy orders accumulate around a special price in the crypto market, it creates a buy wall. Similarly, accumulating sell orders around any determined price creates a sell wall.
In this article, we will learn about buy and sell walls and how they can be identified in the crypto market.
Understanding Order Book in Crypto Trading
An index list that characterizes sell and buy orders for any particular crypto asset around a particular price is known as an order book. The price of any cryptocurrency is established when its supply in the market meets the demand. When the orders on both sides meet a certain price level, trade is finally executed.
Market phenomenon fulfills the orders in a sequence; therefore, they cannot be executed randomly. If any two individuals, A and B, aim at selling their Bitcoins at 21,000 dollars and 20,000 dollars, respectively, it would create two open orders in the market. Suppose a third individual, C enters the market, setting the selling price for his Bitcoin at 22,000 dollars. It will now create three uncompleted orders in the market.
When any buyer X enters the market to buy a Bitcoin for 22,000 dollars, he will not get the Bitcoin of seller C; instead, he will buy the coin of seller A. it will mark 21,000 dollars as the spot price for Bitcoin in the market. However, sellers B and C’s orders will remain open until the subsequent buyers enter the market.
Understanding Market Depth
Traders can mark buy and sell orders concerning each other on a market depth chart. It is done after packing together all the open orders in the market. The bid and ask prices are represented on the graph’s X-axis. The bid price shows the buy orders, while the ask price shows the sell orders. On the other hand, the cumulative market volume is represented on the Y-axis of the graph.
Identification of Buy and Sell Walls
A wall is created at any side of the market depth chart when a significant spike is created, moving upward. These lines resemble the side angle of a staircase, appearing as large vertical lines.
If the number of buy orders in the market exceeds the existing sell orders at a special set price, it creates a buy wall. It represents that the demand for any crypto asset is more significant than its supply in the market. Therefore, the buy wall represents the traders’ support area, giving them a significant bounce in the price.
On the other hand, when the sum of sell orders exceeds the buy orders in the market, it creates a sell wall on the market depth chart. The sell wall represents that the demand for any crypto asset exceeds its supply.
Whenever a massive buy wall is created contrary to a smaller sell wall, it indicates a huge demand and vice versa. Moreover, it shows that there is only an upside path to maintain the least market resistance. The sell and buy walls on the market depth chart makes it easier for traders to look for any rebound or rejection in prices. They can spot potential areas and analyze the market situation accordingly.
However, traders should not only depend on the buy and sell walls in order books to determine market prices. Market direction can deviate at any time as orders can be pulled at any moment, causing a lot of uncertainty. Moreover, whales in the market can easily manipulate market prices by adding or removing large walls through their capital.
Conclusion
Cryptocurrencies’ highly unpredictable nature causes multiple uncertainties in the market. Therefore, technical tools such as buy and sell walls help traders to spot market manipulations easily and make informed market decisions.
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