A “buy wall” in cryptocurrency trading refers to a massive line up of buy orders around a particular price level. Similarly, a “sell wall” is a significant accumulation of sell orders at a given price level.
This article dives deeper into buy and sell walls, uncovering how investors can identify them. It also discusses how traders can leverage knowledge of crypto whales, and the famous Bitcoin CME gap indicator to maximize profit profit opportunities.
First, let us learn more about an order book and its market depth, as these concepts will help you understand how buy and sell walls function.
What is an order book and market depth?
In crypto trading, an “order book” is an index, listing buy and sell orders for a specific asset based on price levels. A trade is carried out when the orders on either side meet at a certain price level, establishing the cryptocurrency’s price as supply meets demand.
It is important to note that these orders get executed in the order of their sequence not randomly. These lists provide valuable trading information and also improve market transparency.
Market depth on the other hand refers to the level of liquidity in a financial market, in this case, a crypto asset. It indicates the purchase and sell order volume for a particular asset at different prices without significantly impacting the price of the security. Market depth considers price levels, order size or volume at each price level.
By measuring real-time supply and demand, traders use market depth to assess the likely direction of an asset’s price.
Identifying buy and sell walls
A buy wall is formed when the number of buy orders enormously exceeds the sell orders at a given price, thus illustrating greater demand for the cryptocurrency versus its supply. As a result, crypto traders see the levels where buy walls appear as areas of support for a potential bounce. Likewise, a sell wall is created when the number of sell orders surpasses the buy orders, showing weaker demand versus supply at a certain price level.
Therefore, viewing the order book as “walls” makes it easier for traders to spot potential areas for price rebounds and rejections.
Predicting price direction solely on buy and sell walls might affect a trader badly. Market dynamics are always in flux, crypto whales can also manipulate the market to their advantage by using their large capital to create or remove large walls of orders. Then comes the question:
Who are Crypto Whales?
Crypto whales are individuals or institutions that have large or significant units of a particular cryptocurrency. These individuals or institutions have funds sufficient enough to make enormously large deals on the market. Crypto whales are viewed as key players in the market as their buy or sell actions can either cause an increase or decrease in the price of a particular cryptocurrency.
How Much Do You Need to Become A Crypto Whale?
Being a crypto whale depends on the particular crypto asset as their prices differ. A big cryptocurrency like Bitcoin will require a whale to have a minimum of 1000 BTC in his wallet while smaller digital currency will likely require a lesser amount to move the asset’s market price.
When crypto whales buy and sell assets in large volumes, it gives the public the impression of a high demand of an asset or a potential price decrease.
However, it is not in all cases that the movement of whales’ funds signals a price manipulation. Sometimes, they may be changing the location of their holdings.
With blockchain’s transparency, crypto traders and investors can know the quantity of cryptocurrency a crypto whale owns. Monitoring crypto whale’s balances with blockchain explorers that identify specific wallets can help in knowing their actions in the market. Some of the blockchain explorers include Whale Alert, BitInfoChart, Etherscan, Solscan.
Apart from crypto whales, investors also pay attention to the CME Bitcoin Gap.
CME Bitcoin Gap
The CME Bitcoin Gap (also known as the CMG gap) is the price difference that occurs on the Chicago Mercantile Exchange Bitcoin futures chart between the closing price of one trading day and the opening of the next trading day.
CME trading hours closes on Friday every week at 5:45 PM Eastern standard Time (EST) or (10:45 PM London Time). Trading resumes on Sunday at 6:00 PM EST (11:00 PM London Time). Once trading resumes, there is always a price difference. The price difference is the Bitcoin CME gap.
The Chicago Mercantile Exchange (CME) is the world’s largest derivatives trading exchange. It started offering Bitcoin futures on December 18, 2017. As the largest U.S. regulated trading venue for trading Bitcoin futures contracts, CME offers futures and options contracts on assets like agricultural products, cryptocurrencies, stocks, energy and forex.
Using Bitcoin futures contracts, investors can profit from an increase or decrease in the price of Bitcoin.
Since Bitcoin CME gaps usually occur over the weekend or during public holidays,CME’s Bitcoin prices may close at a high price and open at a low. When this happens, the spot price will usually rise to fill the CME gap that was created. However, if the opening price after a weekend is higher than the closing price on Friday, then there’s a high chance that the spot price will correct within 24 hours after the market reopens.
Combining knowledge of buy and sell ways, Bitcoin CME gaps, and watching crypto whales can enable traders and investors to make profitable trading decisions. As a rule of thumb, traders are always encouraged to trade responsibly and only invest an amount they can afford to lose.