Step Into The Mind Of A Crypto Trader | Understanding A Cryptocurrency's Order Book And The Buy/Sell Walls Within Them

It took me several months of reading to understand and get my sea legs in the cryptocurrency market. In addition, crypto trading is different from traditional stock trading. I didn’t have anyone to hold my hand which is why, here at House Kryptonaut, I want to share what I have learned and believe are some of the essential tools to consider to potentially help you make better trading decisions.

As such, I want to give you my thoughts on assessing order books and buy/sell walls.

So join me and lets step into the mind of a crypto trader (me!)....

Gauging a cryptocurrency’s market sentiment/conditions before a trade is vital. Your assessment may not be accurate 100% of the time, but the goal is not to dive in completely blind which could lead to costly opening positions. In order to do this I think you need key things:

1. Information. What articles are being written about the crypto? What are people saying about it? Reading in-depth posts on Steemit is a great start. For more information consider joining the cryptocurrency’s Telegram channel. While FUD and dissenting, opinions are generally not allowed or tolerated, you can still get a lot of information from the questions and articles members post to the channel. There are also Telegram Channel’s that post crypto market news/signals/etc. I like the following:

   • CryptoCoinRanking. Use this link to join.
   • Cointelegraph. Paste this link into your mobile device to join.
   • News.Bitcoin.com. Paste this link into your mobile device to join.

2. Order Book Assessment. Information in conjunction with taking a good look at a cryptocurrency’s order book should give you a good sentiment and outlook. At the very least a quick look at the order book will indicate whether there are more buyers than sellers. For noobs to crypto trading, an order book is a viewable list of all the active buy/sell orders placed for a currency on an exchange. Unlike traditional stock trading where only specific entities, such as banks, can view buy/sell orders, in crypto, it is a fair playing field where everyone can view and make purchases directly from the entire order book. Most exchanges will also have the capability to visualize an order book.

ORDER BOOK NUANCES

PRICE GAPS CAN BE YOUR FRIEND OR ENEMY

The first thing to know is buy/sell orders are usually opened/closed around the current price. However, as you get further from the price, buy/sell orders often occur at different magnitudes. These are orders that folks just put down as their exit price, manipulation, or for fun in case the price drops or increases to buy/sell at awesome price. The reason for the order distribution isn’t as important as the gaps between prices as well as the magnitude of the orders within those prices.

What makes a cryptocurrency jump in price? It’s when everyone is trying to get in on the action and not having any choice but to buy at the price that someone has put a sell order at. The simple example is you notice that a crypto’s price is popping. Let’s imagine that you see the price move from $10 to $11. As traders interpret it as a good time to jump in they have they buy the next best sell order available. This might be $11.25 instead of $11.01.

The takeaway here is that I urge you to get the lay of the land and take a little time to check out buy/sell order positioning and magnitude.

Buy/Sell Walls

Some people define a wall when one side greatly exceeds the other side of the order book. For example, if there are more buy orders than sell orders then that is a buy wall.

However, I define walls as very large individual buy/sell price points within the order book that makes it difficult to move the price past the wall is set.

Walls can be created anywhere. I’ve seen walls where the gap between the buy/sell orders are very slim from the current open price. When you see this, the price will have a difficult time moving in either direction.

Walls can be tricky because you never know if the wall is just there for show or there to influence the price. The only way to know for sure is to see the action when the price reaches the wall to see what happens.

How Powerful Is A Wall?

The magnitude of a wall depends on the volume that is against it any given time. In other words, don’t automatically assume that a wall is impenetrable from its size. I’ve seen 20 BTC walls get cut down like butter when demand is high. I’ve also seen tiny walls that are effective just because there isn’t any volume against them to cut them down.

One other thing that I’ve learned is to look ahead in the order book if you want to try to catch a crypto when it’s hot. It helps me determine where to set my exit. I usually set an exit before the price reaches the wall. While a large wall may be shredded, I can always re-enter if it is removed by the owner(s) or is cut down.

The Order Book Is Not An Absolute Truth

Assessing an order book won’t give you a 100% perfect sentiment or market condition. Crypto trading can be wild, dynamic and at any given moment the landscape can change. Don’t be surprised to see walls created and cancelled at any given moment.

One other thing that I’ve learned is to look ahead in the order book if you want to try to catch a crypto when it’s hot. It helps me determine where to set my exit. I usually set an exit before the price reaches the wall. While a large wall may be shredded, I can always re-enter if it is removed by the owner(s) or is cut down.

Conclusion

Regarding order books, my advice is to watch the action, assess the volume, use your intuition and use the order book as a tool to make the best determination where the price has the best chance to move before you dive right in.

I like crypto trading because it’s 24/7, but I love crypto trading because I can see the order book. It’s a huge advantage over traditional stock trading. With stocks I’m flying blind, but with crypto I can make a better determination of a crypto’s tradable landscape. My opening positions may not always be optimal, but least I know I made the best decision at the time with the information at hand before I just blindly pull the trigger.

If you have other trading strategies in regard to any of the topics in the post, please share them with me and the community so we can all make better trading decisions.

Thanks!

Kryptonaut