While depth charts can vary across exchanges, a typical Bitcoin depth chart depicts a green line sloping negatively from left to right, and a red line sloping negatively from right to left. The green line is known as the bid line, and depicts the bids, or buy orders, at each Bitcoin price point. A depth chart for a bid/ask market has two lines, one for BIDs (BUY orders) and one for ASKs (SELL orders). GDAX live chart has an Green line for BIDs (BUY orders), a Red line for ASKs (SELL orders). Again, a line on a chart is simply made up by plotting dots. Each dot on a depth chart line represents how much can be traded at that point. Aug 13, · Each dot on the depth chart shows how much you can trade at a given point. Bid orders are placed using dollars. For example, you might want to purchase two bitcoin at $9, each. This means that the total size of your bid is $19, for a trade that comes in at $9, or less.
Bitcoin market depth chartHow To Read Depth Charts In Crypto » CryptoWhat
For those looking to engage in trading, knowing how to read a Bitcoin depth chart is an essential part of understanding the market. While depth charts can vary across exchanges, a standard Bitcoin depth chart has a few key components:. Most cryptocurrency exchanges provide depth charts where users can hover over any point on the bid or ask line and see how many buy or sell orders are placed at that price. In a depth chart, the aggregate value of the sell orders is stretched to correspond to the dollar values on the left axis.
If demand and supply for the asset are roughly equal, then the x-axis should be closely aligned in value.
If the asset is very liquid, meaning more market participants are looking to sell the asset than are looking to buy, volume will be skewed to the right, creating a large sell wall. If the asset is illiquid, in which there is higher demand for the asset than participants are willing to supply, the chart will be skewed to the left, creating a buy wall.
Buy and sell walls are representative of a significant weight of orders at a given price, and can indicate market trends. The more unrealized sell orders exist at a given price, the higher the sell wall. Similarly, the more unrealized buy orders exist at a given price, the higher the buy wall. Buy and sell walls are indicators of future weighted orders and volatility; In this way, the buy and sell walls listed in an order book can give a trader insights into how the other actors in the market are predicting price changes.
Cryptocurrency exchanges will often provide a second chart, known as a candlestick chart, along with a depth chart. A candlestick chart illustrates the price movements of an asset during a specified timeframe.
A candlestick chart, also known as a price chart, uses candlestick figures to represent the changes in price between open, close, high, and low. Candlestick charts can be viewed in almost any fixed time period; many day-traders will keep track of minute-by-minute price movements. The main component of a candlestick chart is the candlestick body, which represents the price movement during the fixed time period.
By the time you finish this article, you will have a strong understanding of how using this kind of crypto chart can advise your trading decisions. Depth charts are not just unique to the crypto market.
This kind of chart has been available to stock and commodity traders for quite some time in this modern age of digital trading and analysis. Today we will focus on the crypto-trading side by looking at the depth chart available on Coinbase Pro. Since you have made it this far, you probably already understand the relationship between supply and demand.
Supply is the number of tokens available to be purchased by the available demand liquidity, usually in Bitcoin or USD.
A depth chart provides a powerful visual of the current and usually fluctuating picture of supply and demand within a wide range of different prices. This color coordination is very similar to a typical candlestick chart. Dots form the lines on these charts plotted to show how much of the currency can be bought or sold at each available price level. Essentially you are selling your Bitcoin for USD.
Each side of the depth chart is a visual representation of all the kinds of bid and ask orders that people have set up in advance. And the charts are cumulative in how they display and plot the line on each side. So the green line, which represents the bids, plots a dot at each increment along the horizontal axis of the chart [the bottom], representing each price point through the price range of available bids [ex.
At each price point, you can add up all the bids and plot the total along the vertical axis [left of the chart], representing the total number of bids at that price level. When you roll your cursor over the depth chart on Coinbase Pro, you can see exactly how many bids or asks are placed at the exact price. That adds up to a total of 4. The vertical axis shows the total accumulated value of the number of Bitcoins being sold at each price increment along the horizontal axis.
There is significant sell pressure at these price levels. And of course, the depth chart also makes it easy to see how the amount of USD ramps up at certain price levels, which we would call support levels, that help keep the price from going further down. And these are the fundamentals of how a depth chart works. If you were wondering if a depth chart is enough to base your trading decisions on, the short and straightforward answer to that is: NO.
For a successful crypto trader, the depth chart will be merely one of the multiple aspects that will be considered when looking to enter a trading position or sell in profit. For example, different supply or demand curves that materialize may be interpreted differently by traders.
But essentially, as the lines grow or shrink, it may help provide you with a bias as to the short term direction of the market.