What Is a Buy Wall?
When you engage in crypto trading, you essentially submit buy and sell orders. If you are looking to buy on the open market, you submit a buy order. If you wish to sell, you submit a sell order. The system then matches you to the person that is doing the opposite, and a trade can be made. However, there are times when something called a buy wall (or sell wall) appears and disrupts this process. This guide will focus on explaining what a buy wall is and how it is created.
Buy Wall Overview: What Is a Buy Wall in Crypto Trading?
While the ideal situation is to have buy and sell orders balanced at all times, this is not always possible. Sometimes, a buy wall can occur, which is the term used for the event when order books fall out of balance.
To put it simply, a buy wall happens when significantly large buy orders disrupt the trading market. In some cases, one order is all it takes to create a buy wall. However, it’s worth noting that not all buy walls are natural. While buy walls tend to occur naturally during bull runs, they are often be used to manipulate the market.
How Do Whales Manipulate the Crypto Market?
All that it takes is a wealthy individual or a group of traders/institutions that want to make an impact. With their single or combined wealth, they can tip the scales of the order books. Individuals with large amounts of crypto, commonly known as crypto whales, are able to manipulate the market. If they already hold a certain asset and expect its price to go down, they might create a buy wall. In doing so, they ensure that the asset’s price will rise.
Experienced traders monitor the market rather closely, waiting for opportunities to present themselves. When they see a buy wall for an asset like Bitcoin, they tend to assume the asset’s price will surge due to increased demand, which incentivises them to start buying as well. In doing so, they further contribute to making the demand and the price of the assets increases.
How Do Whales Manipulate the Crypto Market?
Similar to traditional exchanges, cryptocurrency exchanges use order books. These are a list of limit orders that are placed by traders that are waiting to be executed. When traders wish to buy a certain asset, they input their buy price, or bid. Those who wish to sell assets input their selling prices, or ask price. In other words, order books match orders of the same price and trades can be made. However, if the buy order and sell order are not an exact match, they are placed in the order book until the order is filled.
When a buy wall occurs, the number of buy orders outweigh the number of sell orders. This usually indicates that the price is about to rise. Since cryptocurrencies are not backed by any asset of value, their value depends on demand. As the demand goes up, so do the prices.
Buy Wall Benefits
Just because buy walls threatens to disrupt the market, it doesn’t mean that there are no buy wall benefits. If you know how to do it, you can’t use it to your advantage. As mentioned, those who spot buy walls often contribute to it. As they are also looking to profit from the speculation. As a result, using buy walls is a commonly used trading strategy.
By placing your buy orders when a buy wall emerges, traders may benefit from a potential uptick in the assets price. The trick however, is recognizing when the price reaches its peak. No bull run is infinite, and sooner or later, it will lose its momentum. When that happens, it is time to sell.
Buy Wall Risks
On the negative side, you should also be aware of the buy wall risks. One of the biggest risks is joining the trade too late. If that happens, you might buy cryptocurrencies when they have already reached their peak. After that, their price rapidly turns and starts dropping. If you sell at any point during that drop, you will experience losses.
Buy Wall vs. Sell Wall
According to the buy wall definition, this is an event when buy orders exceed the sell orders. Sell walls follow the same concept, only it goes in the opposite direction. Sell walls occur when there are more sell orders than buy orders. This indicates that people seek to sell more than they wish to buy. It is also generally an indication that the asset’s price is about to go down. The bigger the walls, the more buyers/sellers are there.
Identifying Buy Walls: How To Tell if a Buy Wall Is Artificial?
Of course, buy walls don’t always occur as a result of the whale activity. Often enough, it appears naturally. This is why identifying buy walls as natural or artificial is very important.
Natural buy walls happen when the market sentiment is positive. Let’s say that developers have announced a major update or a new partnership of the project. This may cause users to rush to buy the asset, as their expectations of it have grown.
The easy way to tell that a buy wall is fake is the fact that it appeared quickly. Usually, its size is also a give away. This suggests that it didn’t gradually grow due to the accumulation of buy orders. Instead, someone has made a huge buy order, and that disrupted the balance. If the buy wall quickly appears and then disappears, chances are that it was whale activity.
Alternatively, you can also check the order books. This is useful if you wish to check whether a buy order is meant to manipulate the market. If an order has been sitting in the order book for a while, it might not be a manipulation attempt. Chances are that the buyer is genuine. They have simply submitted an order with a high price, and they are waiting for the market to reach it.
What Is a Depth Chart?
One of the best tools for assessing market sentiment is the Depth Chart. This is a tool that helps you understand the supply and demand for cryptocurrencies. It covers a wide range of prices in real time. It is essentially a visual representation of the situation in the order book.
The depth chart consists of four key components — bid line, ask line, X-Axis, and Y-Axis. The bid line shows the value of buy orders, while the ask line shows the value of sell orders. The X-Axis is a horizontal axis, typically in USD. It shows various price points at which users have placed their buy and sell orders. As for the Y-Axis, it is the vertical axis that shows the quantity of orders placed at each price point.
FAQs
What Is Buy Wall and Sell Wall?
A buy wall is a situation in the crypto market where buy orders exceed the number of sell orders. The sell wall is the opposite situation, where sell orders drastically exceed buy orders.
How Do You Spot a Buy Wall?
You can spot a buy wall by checking out order books or Depth Chart. The Depth Chart makes it easier to spot one as it is a visual representation of the order book. You can also assume that the market is seeing a buy wall if the asset’s price suddenly surges.
What Is a Bid Wall?
A bid wall is just another name for the buy wall. It comes from the term used for a buy order.
What Does a Sell Wall Mean in Crypto?
A sell wall is a term used to describe a situation where sell orders (ask prices) significantly outnumber buy orders. This is usually followed by a drop in cryptocurrency’s price, as more people are looking to sell than to buy. As a result, the supply exceeds the demand, and the price goes down.
