Buy walls explained
To trade successfully, you need a good theoretical background. Without knowledge of terminology and basic analysis of exchange indicators, you can lose everything almost instantly, because the volatility of some assets is extremely high, and quotes can rise and fall several times a day. One of the most important terms is the wall. Let’s boil down what is buy wall in stocks and crypto exchange.
The word “wall” in the context of exchange trading means a large order or an entire group of orders to sell or buy assets. The presence of a wall on a cryptocurrency exchange prevents the rate from moving above or below a certain point, which is successfully used by experienced traders.
How walls work
The presence of a sell wall prevents orders with higher prices from being executed. For example, a group of traders simultaneously puts 10,000 forks for sale at $5 per unit. Obviously, no one in their right mind would buy the same forks for $6, $7 or $10 when they could be bought for $5.
This allows the traders, who created the wall on cryptocurrency, to keep the rate under control and not let it grow. At the same time, they themselves can remove the wall at any time, if it suits their interests. Other sellers, seeing an array of sell orders at low prices, can simply panic and start draining their assets for mere pennies. It’s not uncommon for traders who create a wall to rely on the psychological aspect.
The opposite would be the situation with a buy wall. Such a wall on a cryptocurrency exchange prevents transactions at lower prices. For example, several traders place orders to buy forks at an inflated price. Then, sellers will not pay attention to orders with lower prices, and traders who created those orders will be forced to buy assets at higher prices or not buy them at all. In this case, no one on the exchange will be able to buy and will not want to sell this cryptocurrency cheaper than the value set by the wall, artificially inflating prices.
Fictitious Buy Wall
A fictional wall generally rises abruptly at a given price — it doesn’t rise gradually. An order is made at the lowest current bid price or the highest current ask price in most circumstances. Such walls are fictional or artificial since a trader placed a large order might cancel it any second.
Whales build up enormous orders to manipulate the market. For example, they can create an artificial buy wall keeping the price high. At the same time, they’d sell assets. Once whales realize desired amount of assets, they swiftly cancel an order, causing the price to fall. Many traders would sell off as prices plummeted. And that’s an entrance point for whales. This vicious cycle repeats over and over again, only helping whales to accumulate money.
Buy wall vs Sell wall
Sometimes, one can observe the so-called sell wall — the level of asset prices at which a large number of sell orders are placed. This is the opposite of a buy wall. Let’s examine all types of situations you can face when trading.
Depth of market may have 3 basic conditions: bid domination (sell), equilibrium, and ask( buy) domination. All three market situations are shown in the pictures below.
How to use a wall?
The wall is a very useful tool. Freezing prices and launching quotes up or down at a convenient moment allows you to buy promising assets at lower prices in order to sell them later at a higher price. You can also sell currency at a high rate and then collapse it and buy it up at throwaway prices. When you control pricing, you don’t need to predict the future or hope for luck. It’s a power play, and that’s why a cryptocurrency exchange wall is a tool of the biggest players who operate substantial masses of assets.
How to read buy and sell walls
If you don’t want to be led by whales or speculators, you have to know how to read buy and sell walls. Often, walls are only created to benefit from inexperienced and panicking traders. Major players intimidate naive rookies into buying overpriced or selling underpriced assets. That’s why you may want to find a buy wall. That way you can either sell your asset immediately or wait until it falls, so you can buy a cheaper one.
Since many traders believe what they see, they’re easy prey for whales. A bright example would be placing orders when a significant number of buy and sell orders already appear at a particular level. It can be support level, resistance, or anything else — it doesn’t matter. Even exchanges can create artificial walls. However, they rarely do so since most contracts aren’t required to do so.
As a rule of thumb, you have to check whether there is a particular strategy behind keeping the price low, preventing any sales by building a massive buy wall. In many cases, large buy orders are explained by someone’s will to control the market. Building up buy walls isn’t a commonly used trading strategy, as they show efficiency only for high-liquid assets. That’s why they’re used by large holders, which are usually BTC or ETH enthusiasts.
Buy/sell walls are usually a short-term event, meaning they disappear just the way they appeared.
Buy walls and market manipulations
Walls concept is just one of many ways to manipulate the market. Generally, whales have 5 ways to do so.
Buy and sell walls. Buy walls occur when buy orders significantly exceed sell orders volume. The formation of walls by whales does not mean that they want to buy and sell a coin. More often than not, it’s done to influence the market crowd. This method can and always is combined with other speculation tactics shown below.
Drop & rise cycles. Whale starts selling relatively large amounts of cryptocurrency at below-market prices. This leads to panic sentiment and a “plunge” of the coin, and Whale buys back the cheaper cryptocurrency, which then returns to previous price levels.
Retention level. Whales hold the price of a cryptocurrency in a certain price range until they realize their interest. This can be a set trading position or an exit to lock in profits.
Depth of market flip. With a small number of sell orders, the appearance of increasing demand is created. For this purpose, large buy orders are placed in the cup that can be seen by all market participants. The market crowd, expecting the growth of the asset, enters the market before the large orders. As soon as the whale gains the necessary volume of the trading position in the short, the large buy order is canceled and the market falls.
Pump & dump. The technique involves the use of media and social media communities to provoke small players to buy a coin. This allows the whales to sell the cryptocurrency, bought for nothing, at a good price. After the whale’s release, the value of the coin drops to pre-pumping levels.
How to read the Binance depth chart
Buy and sell walls relate to a trading depth chart concept, a graphical bid/ask orders representation. Generally, a depth chart increases your chances for successful trading. Let’s look at how you can read a depth chart using Binance — the most prominent centralized crypto exchange — as an example.
To access the depth chart on Binance, click on the Depth button shown in the picture below.
When you click the button, a graphical depiction of the bid/ask ratio will appear.
On the green side, you can see the lowest buy order that buyers are hoping the asset would reach in order for them to acquire it as cheaply as possible. On the red side, the maximum sell order that sellers hope the asset would attain so that they may sell it for a large profit is displayed.
You should respond as soon as you notice a vertical line build up on the order charts. For example, If the sell orders soar, you can expect a steep decline. Remember that a quick reversal process occurs immediately after the fake decrease or increase. Artificial, speculative walls fall off, and the price always gets back on track, settling at the starting point.