What are buy and sell walls in crypto and how can one identify them?
In cryptocurrency trading, a “buy wall” is a massive buy order, or multiple buy orders, around a specific price level. Conversely, a “sell wall” is a significant accumulation of sell orders at a given price level.
Before understanding how buy and sell walls work, it is important to know what an order book and its market depth are.
What is an order book in crypto trading?
An “order book” is an index that lists buy and sell orders for a particular cryptocurrency based on price levels. A trade is executed when the orders on each side meet at a certain price level, establishing the cryptocurrency’s price as supply meets demand.
Nevertheless, these orders are not executed randomly – rather, the market fulfills them in their order.
For example, two open orders are created when Peter Griffin tries to sell 1 Bitcoin (BTC) for $25,000 and Cleveland Brown places an order to buy 1 BTC at $24,000. Suppose Glenn Quagmire joins and tries to sell 1 BTC for $26 000. As a result, there are three unfulfilled open orders.
But when a new buyer, Joe Swanson, enters the market and tries to buy 1 BTC for $26,000, he doesn’t get Quagmire’s coin. Instead, he receives Griffin’s BTC for $25,000, and the Bitcoin spot price becomes $25,000.
Meanwhile, Brown’s and Quagmire’s orders will remain open.
What is market depth?
The open orders are bundled together as buy and sell orders and plotted against each other on a market depth chart.
The X-axis of the graph represents bids (buy orders in green) and sell orders (sell orders in red), while the Y-axis represents the cumulative market volume.
Identify buy and sell walls
A large spike that slopes upward on either side of the market depth chart is called a “wall.” These walls appear as deeper vertical lines that resemble the side angle of a staircase, as shown in the example above.
A buy wall forms when the number of buy orders massively exceeds the sell orders at a given price, thus illustrating greater demand for the cryptocurrency versus supply. As a result, traders view the levels where buy walls appear as areas of support for a potential return.
Similarly, a sell wall is created when the number of sell orders exceeds the buy orders, showing weaker demand versus supply at a certain price level.
Related: How to Switch Bull and Bear Flag Patterns?
A large buy wall against a drastically smaller sell wall on the market depth chart suggests strong demand and that the path of least resistance is currently to the upside, and vice versa.
Ultimately, viewing the order book as “walls” makes it easier for traders to spot potential areas for price pullbacks and rejections.
As a word of caution, buy and sell walls should not be solely relied upon to predict price direction. Orders can be withdrawn or entered at any time, with market dynamics always changing.
Also, “whale” traders can use their large capital to create or remove large walls of orders as a way to manipulate the market in their favor.
For more tips on spotting and avoiding potential market manipulation, check out Cointelegraph’s previous coverage.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.
