bitcoin-depth-chart-importance

Why Is The Bitcoin Depth Chart Important For Trading?

As more and more technical guys and common people enter into the domain of Bitcoin compared to traditional traders, the terminologies and the concepts should be revisited for a better understanding of these common people. So to do that there is a need for a Bitcoin depth chart. So let us look at the concept of this chart in detail.  

How Is The Bitcoin Depth Chart Important?

Many times individuals prefer either holding Bitcoin for a long term investment or put them in trading. A depth chart is an important tool that allows us to understand and evaluate the demand and supply of Bitcoin at any specified range of value. It can be said as a visual representation of any order book that is the outstanding sell or buys of any asset at various levels of prices. For people who are wishing to invest Bitcoin in trading, it is very crucial for them to know the way of reading the Bitcoin depth chart for a better understanding of the market. 

Essential Elements Of A Bitcoin Depth Chart

In order to know how to read a depth chart, it is very important that you know the various elements of the free market depth chart. While depth charts can vary across exchanges like that of Bitcoin depth chart Binance, Bitcoin depth chart Coinbase, etc. a standard Bitcoin depth chart has few very important components. 

  • Bid Line: The bid line portrays the accumulated value of the bid at any provided price point of Bitcoin. It is shown by a green line that is sloping negatively from left to right. Here buy orders are placed in fiat currencies like dollars. 
  •  Ask Line: The ask line portrays the accumulative value of the sell, or ask orders at every price point. It is represented by a sloping red line from right to left. 
  • Horizontal Axis: This is the point of the price where they sell and buy orders are placed. 
  • Vertical Axis: It is the tidal dollar value in terms of the Bitcoin orders that are placed. The total value in dollars of all the Bitcoins is shown in the left vertical axis. 

Now you may wonder what does a good depth chart looks like? Most depth charts that are provided by the digital currency exchanges hover over any point on the ask line or the bid and see the number of sells or buy orders that are placed at that particular price point. 

What Is Represented By A Depth Chart?

In a Bitcoin depth chart, the cumulative value of the sell orders is extended to respond to the dollar values on the left axis. However, the values of the x-axis, while valued in the same currency, do not always portray the same values. The difference in the values on the x-axis provides an investor or trader the insight into the liquidity and the fluctuations of the asset.

If supply and demand for the asset are approximately equal, then the x-axis should be closely the same in value. If the asset is very liquid, which implies more market participants are wanting to sell the asset than are in the need to buy, the volume will be slanted to the right, formulating a large sell wall. If the asset is not liquid, in which there is greater demand for the asset than traders are willing to provide, the chart will be inclined to the left, formulating a buy wall.

What Is A Buy Wall?

The more unnoticed buy orders prevail at a given price, the greater the buy wall. A high buy wall can mean that traders believe the value will not fall below a marked price. A large buy wall stops bitcoin prices from falling rapidly because it formulates a large number of buy orders at a single price. In the time of a bearish market cycle, buy wall orders may be filled more quickly than during bullish market cycles due to hiked market liquidity. The formulation and increase of a buy wall can be affected by market psychology. If traders see a large or increasing buy wall, they may think that the asset price will increase, affecting them to sell and build immediate profit or buy and understand greater long-term profits.

What Is A Sell Wall?

The more unnoticed sell orders prevail at a given price, the higher the sell wall. A high sell wall can show that there are many traders who do not believe that an asset will cross a given price, while a low sell wall may indicate that the asset price may increase. A large sell wall protects bitcoin prices from increasing rapidly because it formulates a large number of sell orders at one price. If traders see a big or increasing sell wall, they may think that the price of assets will fall, which will influence them to avoid and sell greater losses.

Conclusion

The bid and ask line shows the accumulative valuation of all sell and buy orders at a provided price. So this can be concluded that a good Bitcoin depth chart provides a good view into the demand supply of Bitcoin in the current time. When you are reading a depth chart it is important that you consider price liquidity as well. The Ethereum depth chart serves the same purpose in terms of Ether. But the Bitcoin Depth chart is one of the best crypto depth charts. 

Frequently Asked Questions On Bitcoin Depth Chart

1. How do you read the Bitcoin depth chart?

From left to right is the USD price, bottom to top is the quantity of USDT. The red sloping line (left) is “buy” orders for USDT when the dollar price goes down very far, and the black sloping line (right) is “sell” orders for when it goes up very far. The bottom chart is the orders, the top chart is the accumulated value.

2. What does a depth chart tell you?

A depth chart represents the buy and sell of orders for a specific asset at various prices in a graphical image. A depth chart shows both sides of demand and supply to illustrate how much of an asset can be sold at a specified price point. It is also arranged across the bottom by price.

3. What is depth of Binance chart?

A depth of Binance chart is a tool to evaluate the demand and supply of any crypto at any given moment for a specified price range.

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