What are Buy and Sell Walls in Crypto? [Beginner's Guide]

Salomon Kisters

Mar 27, 2023

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Crypto trading is a relatively new concept that has been gaining a lot of popularity in the past couple of years.

The industry has evolved from a quirky tech innovation to a booming financial sector. Traders, investors, and institutions are constantly looking for ways to stay ahead of the curve and benefit from this disruptive technology.

Over the years, traders have designed different strategies that allow them to cash out significant profits in quick succession in the blockchain space. Among these is one particular strategy to buy and sell cryptocurrency, known as the buy and sell walls strategy.

Used by institutions and big whales alike, these buy and sell walls in crypto can be used to create a short-term market trend in the intended direction to produce favorable outcomes.

In this article, we will go into great detail and help you understand the notion of buy walls and sell walls, what they are, how they work, and their significance in crypto trading.

What is a Buy Wall?

A buy wall is a large limit order placed on the buy side of an order book, with the intention of creating a barrier to prevent the price from going down. A buy wall is created when a large number of buy orders are placed at a specific price level, which is usually lower than the current market price.

The buy wall is represented on the order book as a horizontal line, indicating the number of buy orders at a particular price level. The larger the buy wall, the stronger the support level, making it difficult for the price to drop below that threshold.

A buy wall is a common strategy used by traders to manipulate the market to their advantage. For example, if a trader wants to buy a large number of coins at a lower price, they can place a large buy order, creating a buy wall.

This strategy can attract other traders to place their orders at the same price level, creating a sense of rising demand and driving up the price. As a result, the trader can buy the coins they want at a lower price and then sell them when the price goes up.

What is a Sell Wall?

A sell wall is the opposite of a buy wall, where a large number of sell orders are placed at a specific price level, creating a barrier to prevent the price from going up.

The sell wall is also represented on the order book as a horizontal line, indicating the number of sell orders at a particular price level. The larger the sell wall, the stronger the resistance level, making it difficult for the price to go beyond that level.

Just like the buy wall, sell walls are a tool used by traders to manipulate the market. For example, a trader can create a sell wall by selling a large number of coins at a certain price, creating a sense of rising supply and driving down the price.

As a result, the trader can buy the coins back at a lower price and then sell them when the price goes up.

How Do Buy and Sell Walls Affect the Crypto Market?

Buy and sell walls can have a big influence on the crypto market, affecting the price of coins and the decisions of traders. When a buy wall is created, it generates an impression of growing demand for a specific coin, driving up the price. This demand can attract other traders to buy the coin, further pushing the price up.

Similarly, when a sell wall is created, it produces an impression of increased supply for a specific coin, thus driving down the price. This impression of declining value can push other traders to sell their holdings, further decreasing the price.

Understanding Order Books

The order book is a list of all the buy and sell orders on a certain exchange for a specific coin, regardless of the order volume. The order book lists the number of buy orders and sell orders at different price levels in ascending order, with the lowest price at the top of the list.

The order book is split into two sections (the buy side and the sell side). The buy side lists the buy orders, and the sell side lists the sell orders. The price at the top of the buy side is the highest bid, and the price at the top of the sell side is the lowest ask.

These order books provide traders with additional information about the market and how to calculate their entries and exits from an asset. Larger players tend to manipulate the order books and utilize it to their advantage.

Buy and sell walls are often confused with order books, but they are not the same thing. An order book displays all the buy and sell orders that have been placed by traders, while buy and sell walls refer to the occurrence of a large number of buy or sell orders at a specific price point.

Risks and Limitations of Buy and Sell Walls

Buy and sell walls can create a false impression of demand or supply conditions in a market. This can cause price volatility and can be risky for traders who are unfamiliar with the cryptocurrency market.

Buy and sell walls also have limitations as they only provide information about the current demand and supply for a particular cryptocurrency. They do not provide any information about the future price movement of any type of virtual currency. Traders can use buy and sell walls as a tool to make informed decisions only about short term trades.

However, as far as long-term entry (or exit) positions are concerned, other factors (such as market trends, news, and events) play a much more vital role in the future price action of a certain asset.

Conclusion

Cryptocurrency trading, including Bitcoin, Ethereum, and other coins and tokens, entails both high risk and high reward, making it possible for traders to be successful if they have access to all the necessary resources and information.

As a speculative market, it can occasionally be manipulated, but to remain safe and profitable, you must keep up-to-date on technical analysis and other effective trading techniques that will enable you to spot opportunities in this unpredictable market. And a lot of traders rely on buy and sell walls for that.

Buy and sell walls are a common occurrence in cryptocurrency trading, and understanding them is crucial to making informed decisions.

On one hand, they may be used to influence the market by creating a misleading picture of demand or supply conditions.

On the other hand, they can give traders vital market information that can be utilized to make more informed decisions regarding when to purchase or sell a particular cryptocurrency.

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Please note that the Content may have been generated with the Help of AI. The editorial content of OriginStamp AG does not constitute a recommendation for investment or purchase advice. In principle, an investment can also lead to a total loss. Therefore, please seek advice before making an investment decision.