Depth chart
The depth chart is a graph that demonstrates the relationship between the supply and the demand of a particular cryptocurrency. Aside from cryptocurrency exchanges, depth charts are used to analyze many different types of markets, such as stocks or commodities.
In the case of the cryptocurrency market, the supply is the available coins for the purchase, and the demand part of the graph represents the bids that the traders made to purchase that specific cryptocurrency. These bids are recorded in the order book, and they have a lower value than the supply part of the depth graph.
Elements of the Depth Chart for a Crypto Asset
The horizontal axis of the depth chart illustrates the price points of the orders. In comparison, the vertical axis represents the size of the orders. The prices depend on the chart’s type. For example, one of the most used depth charts is the Bitcoin/Dollar. In this chart, the X-Axis is the value in dollars. In comparison, Y-Axis is the amount of the Bitcoin in the order book.
The left and green sides of the depth chart are the bids in the order book. Since they have a lower value, they are on the left side of the chart. In contrast, the right and red side of the graph represents the selling part of the cryptocurrency.
The walls of the depth chart
The walls are prices that can significantly affect the equality of supply and demand. Traders observe the walls of the chart to make predictions. In the depth chart, there are two walls for buying and selling.
- Buy walls: The buy walls arise because of the large number of orders at a specific price. Larger buy walls may signal a price increase for that cryptocurrency.
- Sell walls: The sellers put specific prices in large amounts of cryptocurrency in the sell walls. Both barriers prevent sudden price changes due to their large amounts. Growing sell walls may signal a price decrease for that cryptocurrency.
Interested in cryptocurrency trading? Learn bear and bull markets first, then go to the article about cryptocurrency trading.
