Buy Walls and Sell Walls can be seen as indicators of the health of a cryptocurrency, and their general market trend. As such, they can be useful for traders and potential investors.
Before we delve into a more detailed explanation, let’s define what an order book is, and why this is important to know in relation to buy and sell walls.
What is an Order Book?
The order book shows the market depth. This is a measurement of limit orders currently placed, waiting to be executed. It is an indicator of the ability of the trading platform to sustain market orders without the price being impacted, and is also an indicator of liquidity.
When buy orders (green) match sell orders (red) on the order book at the same price, a trade is made. If the buy orders and sell orders don’t match, they will be placed into the order book until an order is made that does match.
If the quantity of orders is larger on the buy side than the sell side, then it would indicate that the price is likely to rise. Alternatively, if the quantity of orders is larger on the sell side than the buy side, then it would indicate that that the price is likely to drop.
What is a Market Depth Chart?
To give you a better visualisation of the orders in the order book, you can look at the market depth chart. It can give a clear view of market sentiment. Looking at the market depth chart below, the green shows the orders looking to buy at a certain price (bids) and the red shows the orders looking to sell at a certain price (asks).
If the green is higher than the red, then this is a good sign for the cryptocurrency as it shows it is desirable. People are interested in buying it, and would rather hold onto what they’ve got rather than sell.
A buy wall occurs when there are more buy orders than sell orders. The buy wall above is for Bitcoin. This illustrates more people want to buy than sell. The bigger the buy wall, the more this is the case. This will also indicate a probable spike in prices will occur. Buy walls can be created by multiple orders at the same price, or they could be created by a whale (an individual or group holding large amounts of a coin) to manipulate the price. We’ll delve into that more below.
A sell wall on the other hand occurs when there are more sell orders than buy orders. This indicates that more people want to sell rather than buy. The bigger the sell wall, the more this is the case. This will also indicate a probable drop in its price will occur. Just as with buy walls, sell walls can be created by multiple orders of the same price, or by a whale to manipulate the price.
Real vs. Artificial Buy and Sell Walls
Buy and sell walls can be created artificially to manipulate the price of an asset. This is when a whale places a large order at a certain price in an attempt to bring the asset to that price. They do this because of the large amounts of cryptocurrency they possess, and so it is in their best interests to control the price of an asset. But how do they work this to their advantage?
For example, a whale may not want the price of BTC to go above $15,000, and so places a buy order for 1,000 BTC at that price. In response, sellers place orders for 1,000 BTC at $15,000. Because equilibrium has been achieved in the amount of buy and sell orders, the price won’t go above $15,000.
Some traders may be influenced by what they see and buy and sell assets accordingly, as they are hit by FOMO. But how you can tell the difference between a real or artificial wall?
(1) A wall appears significantly and quickly
If a wall appears significantly and quickly, then it would suggest that there isn’t an accumulation of orders at the same price, but rather one big order. Sometimes walls can appear very quickly and then disappear, as the whales have achieved their aim of manipulating the price.
(2) Order has been on order book for a while
Another good way to decipher if a wall is real or not is to see if an order has been on an order book for a while. If this is the case, then there’s a good chance that the buyer or seller is genuinely waiting for their order to be executed at that price and they are not trying to manipulate the market.