Buy and sell walls can be viewed as signs of a crypto’s health and the market’s trend. As a result, traders and potential investors may find them valuable.

Let’s quickly define an order book and the market depth before moving on to a more detailed explanation.

Understanding order book in crypto trading

The buy and sell orders users place for a crypto asset on a centralized exchange are listed in an order book. The buyer and seller orders, the prices at which they were carried out, and the total amounts involved are all documented in the numbers table. It is continuously updated throughout the day to provide up-to-date information for making active trading decisions.

To discover support and resistance, order balance or imbalance, and other activities, you can take advantage of, you can think of it as a behind-the-scenes look into market demand and supply activity.

What is a market depth chart?

To more effectively represent market information, the order book also includes a visual representation in the form of a line chart. The supply and demand for a crypto are shown graphically on a market depth chart at various prices and in real-time. It demonstrates the relative importance of buy and sell limit orders in an order book. It has a buy side and a sell side, just like the order book.

The market depth chart’s vertical axis displays the number of orders placed at each price level, while the horizontal axis displays the prices at which buy and sell orders are placed. You can move your cursor over the depth chart to show how many buy and sell orders are placed at a certain price.

What is a buy wall?

A buy wall occurs when there are more buy orders than sell ones. There are more buyers when the buy wall is larger. This also suggests the likelihood of an upcoming price increase. Multiple orders placed at the same price or a whale (a person or group owning a significant amount of a coin) manipulating the price can both result in buy walls.

What is a sell wall?

There is a sell wall when there are more sell orders than buy orders. This suggests that there are more people who wish to sell than to buy. There are more sellers when the wall is bigger. This also suggests that the asset’s price will probably decline. Sell walls can be produced by numerous orders at the same price or by a whale manipulating the market, just as buy walls.

How do the buy and sell walls work?

In certain cases, buy and sell walls appear as a natural effect of substantial orders placed in markets with low liquidity. A buy wall is created when a large-scale investor, known as a whale, aims to establish a significant position in a smaller crypto. Conversely, a sell wall appears when a whale investor closes out or reduces their exposure to a particular crypto.

A similar effect can occur when numerous smaller investors collaborate and mutually agree on a specific price level for the targeted crypto, leading them to set up numerous buy or sell orders at that price.

Furthermore, such order walls can arise due to typical human behavior influenced by mass psychology. Confidence in trades, regardless of size, can be influenced by appealing, round numbers. For instance, buy walls are more commonly observed at $20 per coin rather than, let’s say, $22.17. The human brain can exhibit peculiar tendencies that way.

Unfortunately, order walls can also be employed to manipulate prices. This concern is particularly significant for smaller and less liquid coins, although whale investors may possess the means to manipulate crypto prices to their desired levels. The use of automated trading systems and smart contracts can potentially facilitate such manipulation. Deep-pocketed traders wield more influence over price fluctuations in markets where coin prices are primarily determined by supply and demand.

Impact of buy and sell walls on the crypto market

Buy and sell walls can have a major influence over the crypto market, exerting an impact on both coin prices and the decision-making process of traders. When a buy wall is created, it creates a perception of growing demand for a particular coin, leading to an increase in its price. This heightened demand can attract additional traders to purchase the coin, consequently driving the price even higher.

Similarly, the creation of a sell wall generates an impression of an increased supply of a specific coin, causing the price to decline. This impression of diminishing value can prompt other traders to sell their holdings, further reducing the price.

Pros and cons of buy and sell wall

Buy walls and sell walls play an essential role in a well-functioning market, although their impact should be considered within certain limits. Whether they arise naturally or artificially, these substantial barriers can bring stability to the targeted crypto and facilitate increased trading volume.

However, it is crucial to recognize that buy and sell walls can pose risks, particularly for inexperienced investors who seek quick wealth and instant exponential gains. A buy wall may create a false perception of robust price support for a struggling cryptocurrency, potentially leading to misguided investment decisions. Conversely, a sell wall can intensify selling pressure on a coin that finds itself in a vulnerable market position.

Conclusion

Trading cryptos carries a high level of risk and potential reward, making it feasible for investors to profit if they have access to all the necessary tools and knowledge.

It can be manipulated frequently because it is a speculative market. Still, to stay safe and profitable, you must stay updated on technical analysis and other efficient trading strategies that will help you recognize opportunities in this volatile market. And for that, many traders rely on buy and sell walls.

In crypto trading, buy and sell walls are a typical occurrence, and understanding them is essential for making wise choices. On the one hand, they might be employed to persuade the market by painting a false picture of supply or demand dynamics.

Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.