Depth of Market

Trader’s Journal
Depth of Market

Depth of Market (Order Book) — is a list with a digital indicators of current orders for the purchase or sale of a certain crypto market asset at prices set by participants. This indicator reflects the sentiments of the bidders and is one of the most important tools of the trader. It also has other names — the Order Book, Level 2, Open Book.

Depth of Market is a table that reflects the information about orders submitted by sellers and buyers at the current moment.

If you analyse the crypto market and depth of market, it is possible to make a short-term forecast of the market situation. A Order Book of quotes along with a table of past transactions is used to monitor the actions of other traders in the market, identify major market participants, determine the size of the spread, and make decisions on the sale or purchase.

The main difference between Depth of Market chart and price charts is that it does not provide a visual display of market data. It only displays the incoming bids that are close to the market and the execution of which will in some way affect the further pricing. If you will figure out how to read Depth of Market charts, you will begin to understand the market from the inside.

Picture of Order book

As it was mentioned Order Book is a list of limit orders in the market at the moment. As a rule, orders for sale are located on top and highlighted in red — they are also called “aski” (from the English. Ask). Purchase requests are highlighted in green, located below and are called “bids”. Both of them are also called “offers”.

The figure on the price indicates the number of lots (or contracts on the crypto market), which can be bought / sold at this price. If you want to buy, for example, 100 lots, then you can buy 15 lots for the price of 74.84 and everything else for 74.85. If you sell, then the entire amount can be sold at 74.8. If these prices do not suit you, then you place a limit order at the price of interest, it appears in the chart, and you wait until there is a bidder who will execute it.

Here is a real example of a schedule of orders for buying and selling Bitcoin on the Bittrex exchange:

Green wall — buyers, red — sellers. The height of the chart is based on the number of order for sale or purchase at the appropriate prices. In the middle of the chart there is a point at which both walls gradually flock and form a real price in a specific period of time.

It is important to understand that none of the trading Book Orders of Crypto Exchanges can display all active orders. Therefore, only orders that are located close to the current price are placed in the visible part. Still, the play of large market participants is usually always noticeable under close observation.

Order Book in the form of a Bitfinex exchange book:

Bids and asks:

Which kinds of orders can be displayed?

There are several types of orders on a cryptocurrency exchange. Consider the three most common types of orders on crypto exchanges:

• Market order. These buy / sell orders are executed at the best market value in the desired volume.

• Limit order. Such orders are normal orders, including the required asset, its price, as well as the desired volume.

• Conditional order. These are all orders requiring compliance with the conditions set by the market participant, excluding limit orders.

Orders that reflect the depth of the market are also divided into small, medium and large ones. Such a division is conditional and is relative to the average daily trading volume for an instrument on a specific crypto exchange site:

• Small — 20–100 contracts. Such a number of contracts does not deserve the special attention of traders, because this volume of the transaction will not be able to influence the pricing of the instrument.

• Medium — 400–1,000 contracts. Such volumes are significant only if a large amount accumulates in a narrow range of prices similar to them. In this case, the pressure on prices occurs due to the density of orders that create an increased volume.

• Large — 4000–10 000 contracts. Such orders are considered important, as they significantly affect the fluctuations of quotations. These positions are closely monitored and take into account their impact on the market when planning their trading activities.

Who is playing?

Usually, the crypto Order Book is filled by traders, however, the trader is different from a trader, therefore, for a more effective analysis of the Order Book, you need to understand what types of players are involved in its formation.

Big players

As a rule, these are investors, on whose balance sheet there are fairly large amounts of the asset. Large players can cause major changes in the price of an asset. Their identification, as well as the clarification of their goals, is the main task of analyzing the crypto exchange Order Book. This is not very easy to do because large investors break up large volumes into several smaller orders, which can be seen while the analysis of the tape of transactions.

Average traders and investors

This is the largest audience of cryptocurrency exchanges. They trade according to their own strategies. This category is most susceptible to panic, and their behavior is easy to predict. It is possible

to select traders and middling investors by the volume of their transactions and the frequency of issuing orders.

Market makers

This category of players by placing orders maintains the liquidity of certain assets in the market, and also reduces the size of the spread.

Such activity is quite risky, so market makers use special algorithms for setting two-way orders in their work. Crypto exchanges encourage market players with preferential commissions, which gives them the opportunity to make deals in different directions.


This category includes traders and trading robots that open a significant number of transactions during the exchange session with a short lifetime. This category of exchange players makes a profit as a result of trading within the spread.

Approximately it looks like this: after analysis of the crypto exchange Order Book, the scalper places an order with the best Bid price and practically together with it the Ask order. If the moment is correctly calculated, then the profit from the transaction will significantly exceed the size of the commission..

High Frequency Trading Robots

Due to the almost instant execution, orders of high-frequency robots are quite difficult to notice in the crypto exchange Order Book, but they are clearly visible in the tape of deals. Robots work on special algorithms and are characterized by a very high speed of calculations.

What to analyze in the Order Book?

If you analyse the Order Book, you need to pay attention to the following things:

1. Big orders

Reading the data tape, track orders, the volume of which exceeds the average. A Big orders is considered in the context of its issuance. It deserves attention in such cases:

2. Duplicate orders

Very large market dealers in the absence of the possibility of opening positions in the over-the-counter market have to use various frauds to recruit positions in the Order Book so as not to be detected. One of these techniques is the inclusion of an algorithm that buys / sells a certain number of instrument lots at the market price at certain intervals. This can be an equal volume at a fixed time interval or varying (10, 20, 30 lots) at random intervals (for example, in the range of 3–20 sec.).

3. Waves

Analysis of walls and orders helps to better understand the market and the mood of the players. Nevertheless, it is worth knowing the following: on the crypto market, the price moves, in most cases, at the request of the big players. They are also called whales. Billionaires are able to mislead by false orders. Imagine, a trader opens a schedule of orders, and see this:

Beginners will think that this is a signal to sell the coin and will hurry up to get rid of it. But, most likely, we see Fake Wall. The schedule is unnatural and created explicitly for the purpose of psychological manipulation. The red wave is too green in size. Such waves appear when some negative event is planned, in connection with which users begin to sell the coin in large quantities.

In this case, the big players placed fake orders, which are unlikely to be fully fulfilled. Not professional traders in panic will try to get rid of the coin, thereby involuntarily knocked down the price to the level that the “whales”* will buy. Then the price will rise again and attract new “hamsters”. And so on…

*The term “whale” is frequently used to describe the big money Bitcoin players

4. Demand and supply

In terms of demand or supply, you can judge the mood of the players in the market. If demand is bigger than supply, then the market looks like a bullish one, or will soon change the trend to this. If there are more offers than buyers, then the price is likely to fall, and then it’s a bear market.

The effectiveness of the use of Order Book:

A decade ago, traders did not imagine their work without using the data of a Order Book of quotations. But nowadays the effectiveness of crypto reports is questioned. Every year more sophisticated trading strategies appear on the market, showing their reliability and profitability. Due to the continuous improvement of approaches to trading, market participants are less likely to resort to using a Order Book of quotations.

Today, also many traders no longer find the Order Book table useful, and there are several good reasons:

A huge array of hidden orders does not allow a full assessment of the current trading situation.

Big market players often use the method of placing bogus orders to extract profits at the expense of inexperienced traders.

False signals. It often happens that a technical indicator gives a signal to continue the trend, while the order book shows the opposite. Such a situation can play a bad joke with the trader.


Order book is a real helper for the intraday and swing trader. Medium and long-term trading does not imply the use of these tools, but understanding the information in the Order Book can help improve the assessment of the market situation and choose the moments of opening deals with the best risk / reward ratio.

Fixing and memorizing the manifest patterns, you can acquire the skill of using Book Order at a level that will be enough for a purposeful increase in the profitability and stability of your own trade.

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