What are Buy and Sell Walls?
Buy and Sell Walls are terminologies from crypto investment markets. Buy wall represent big trades order that contains various purchase orders at a predetermined cost. In the same manner, the term sell wall indicates aggregated sell orders at a specified price point.
What is an Order Book?
Order books are an index of all purchase and sell orders generated for a particular digital currency based on varying prices. One trade contract is completed when orders on both sides reach the same price level.
In this manner, any trading platform can establish a supply and demand graph for listed digital currencies. It is important to note that these orders do not take place in a random manner but follow a sequential order.
When a new trader generates a sell order at any price input, it creates a new open order at the forum. It is until a buyer opens a purchase order that matches any of the open sell orders based on the set prices or average price point.
The purchase order is not always the exact match of the sell order since it also accounts for additional fees such as transaction charges, etc.
What is Market Depth?
Market depth is a graph that lists all the open sell and purchase orders based on varying prices. The x-axis on this graph is bid or purchase orders shown in green. Meanwhile, the sell orders or ask are indicated in red on the y-axis accounting for trade volume.
Bid-Ask spread is a term derived from this graph that indicates the difference between ask or purchasing prices and selling prices or bid.
How to Identify Buy and Sell Walls?
Investors can observe the market depth in terms of sell and buy walls. Walls trace changes in price movement for a given digital asset based on different evaluations. A buy wall is difference between buy orders and sell orders at a particular price.
Buy walls indicate more demand in comparison to supply. Therefore, buy walls are deemed as support where price trend can change.
On the other hand, sell walls represent difference between sell and purchase orders. They are indicative of selling pressure increasing owning to less demand in comparison to supply at a given price level.
When buy wall is smaller in comparison to sell wall, the market depth graph indicates strong demand and most suitable liquidity for trading without obstacles.
In this manner, investors try to identify walls on the order book to spot most probable rebounds and rejections. However, it is not a good idea to consider buy and sell walls as only source for determining price direction.
Investors can cancel an order or add new one at their discretion. Therefore, the condition of the market is always in state of flux. When whale traders are active, they can create or remove big walls based on magnitude of orders.
Advantages and Disadvantages of Buy and Sell Walls
Investors who are creating positions in the cryptocurrencies can observe the buy and sell walls to determine the best exit and entry points. At the same time, walls are useful for understanding the price changes at any point in time.
Furthermore, investors can also observe the impact of various factors on the price of a digital currency based on changes taking place in the wall.
In this manner, investors can use walls to improve their trading strategies. At the same time, investors are also able to prevent additional losses based on price variations on walls. Furthermore, investors are also allowed to determine the price direction based on readings from the price walls. However, there are also some downsides when it comes to reading walls.
Investors require experience and training to accurately read the results from the price walls. Furthermore, using walls information also takes time for investors to translate into a coherent investment strategy. Therefore, beginners may detect false signals from the walls that can lead to losses.
Conclusion
Every trading platform incorporates order book that is visible to the investors as a source of investment information. In this manner, investors can ascertain the market dynamics from the sell and buy walls and increase their profit earning potential.
