Cryptocurrency Trading Tips: Buy & Sell Walls and Whale Market Manipulation
Whether you are someone who has just started trading crypto or a veteran trader who has weathered many a bear/bull market, you have likely heard about buy and sell walls. But what exactly are they and how do whales use this to their advantage to manipulate the market?
Let’s dig deeper to understand what they are so you can spot buy and sell walls and make better trading decisions.
Summary
- A buy wall occurs when there are more buy orders than sell orders. It indicates that more people want to buy than sell.
- A sell wall occurs when there are more sell orders than buy orders. This indicates that more people want to sell than buy.
- Both buy walls and sell walls can be manipulated by whales— traders who own a large portion of the cryptocurrency available.
What is a Wall in Crypto?
Crypto walls can be identified as price points where there are large volumes of buy orders or sell orders set respectively. Visually, the volume of orders forms a “wall” when graphed against price points.
Buy walls and sell walls can greatly influence price fluctuations in cryptocurrency markets. Understanding them can be advantageous when trading cryptocurrencies such as Bitcoin and Ethereum because it allows you to better predict price changes and set your limit orders accordingly.
However, it is crucial to understand the reason behind buy walls and sell walls as they can sometimes be a form of market manipulation instead of reflecting true market sentiment.
What is a Buy Wall?
A buy wall occurs when there are more buy orders than sell orders. The buy wall above is for Binance BTC/USDT on CoinLobster. This can be created by multiple orders at the same price or by a whale (an individual or group holding large amounts of a coin) manipulating the price.
In principle, the size of these buy orders is large enough to drive the price of the asset up if the orders are filled. In fact, the presence of the buy wall tends to drive prices up even before the buy wall orders are filled because the asset’s supply will be significantly reduced after the price hits the buy wall. The buy wall also reflects market confidence that the price level will be significantly higher than the current price.
What is a Sell Wall?
A sell wall is the opposite of a buy wall and occurs when there are more sell orders than buy orders. This indicates that more people want to sell than buy.
A sell wall can cause the price of a cryptocurrency to drop. This is because a sell wall hints that there may be a surge in the supply of the cryptocurrency at that price. This will overwhelm demand and drive prices down.
Identifying Buy Walls and Sell Walls
In order to understand how to spot buy and sell walls, we first need to recap on two topics: order books and market depth.
What is an order book?
An order book is a list of electronic orders, that an exchange uses to record buy and sell interest in a specific cryptocurrency. Tokens are normally listed in an order book by order size and by price level.
In the image below, you can see a live combined orderbook of on CoinLobster. The data includes exchanges such as Bitmex, Bybit, Kraken Futures, Binance, FTX, Coinbase, Bitstamp, Bitfinex.
- Buyers and buy requests are referred to as “Bids” which is represented by the color green.
- Sellers or sell requests are called “Asks” and are represented with the color red.
Order books can give a clear indication as to whether the bulls or bears are in charge of a market. For example, if there is an abundance of sell orders compared to buy orders, it could be taken as an indication that the market is due to decline amid selling pressure.
What is a market depth chart?
To help you visualize the orders in the order book, you can look at the market depth chart. It can give a clear view of market sentiment. Looking at the market depth chart below, the green area shows the orders looking to buy at a certain price (bids), and the red shows the orders looking to sell at a certain price (asks).
If the green side is higher than the red, this means that there are more interest in buys than sells.
Typically, each exchange has its own market depth chart that a trader has to hover their mouse over in order to view the number of purchase or sell orders at each price point.
CoinLobster’s depth chart allows you to see a combined market depth chart of over 10 exchanges. The colours indicate the different exchanges which can be filtered at the top of the website.
Dangers of Buy and Sell Walls: Spoofing
Whales have the resources to single-handedly create buy and sell walls by setting a high number of buy or sell orders. Some whales intentionally do so to sway market sentiment and manipulate prices for their own gain. This is known as spoofing.
It can be difficult to tell if a buy or sell wall is real or artificially created as part of a whale trading strategy. This is especially so in the cryptocurrency market, where volatility is high, and markets are largely based on market sentiment rather than financial metrics or industry trends.
Is the Buy or Sell Wall real?
Here are some examples of what a real or artificial wall may look like.
Real Walls:
- An order has been on the order book for a while
A good way to discern if a wall is real or not is to see if an order has been on an order book for a while. If this is the case, then there’s a good chance that the buyer or seller is genuinely waiting for their order to be executed at that price, and they aren’t trying to manipulate the market.
2. The asset correlates to the coin’s performance.
A real sell wall occurs when the coin or underlying group representing the coin is performing negatively. This could be the result of negative news or sentiment about the company or a failure for the company to meet expected goals. They can also be the result of hacks, scams or a panic sale in a bear market.
3. High market depth
Market depth is considered to be high when there are high volumes of pending orders on both the bid and ask side. This means that prices are less easily manipulated by large market orders at any particular price, since these are absorbed into the large volume of overall orders. It is thus less likely for the buy and sell walls to have a huge influence on the prices, and traders need to pay less heed to them in such cases.
Fake Walls:
1. A large buy or sell wall appears quickly
If a wall appears significantly and quickly, it suggests that there isn’t an accumulation of orders at the same price but rather one big order. Sometimes walls can appear quickly and then disappear as the whale achieves their goal of price manipulation. This is an example of an artificial wall.
2. Low market depth
As opposed to high market depth, low market depth means that prices are more easily manipulated by large market orders at any particular price, since there aren’t enough volume in the market. Therefore, it is much easier for the whale buy and sell walls to have a huge influence on the prices.
Keeping up to date with the latest news in cryptocurrency is another way to assess whether it is an artificial or real wall. In the case where there appears to be significant buy walls or sell walls against the backdrop of little change in public sentiment on social media and in the news, that may be an instance of market manipulation.
Conclusion
The cryptocurrency markets are characterized by both high risks and high returns. Profitable trades can earn you huge rewards that easily supersede the stock markets. However, the unpredictable and highly speculative nature of trading cryptocurrencies lends itself to market manipulation. This is especially the case when market depth is low, and a single whale or group of whales can cause significant price shifts.
At the end of the day, there is no fixed guideline in determining whether a buy wall or sell wall is real, and much of it relies on your own discernment. Learning more about technical analysis and staying updated on the latest developments in the cryptocurrency markets can help you discern the right opportunities and trading strategies amidst the volatility.
You can also read more about identifying crypto whales here by only filtering large whale trades on the CoinLobster Whale Watching Dashboard. It allows you to see the live data of large trades made on major spot exchanges. The filter is at default set at a large multiple of the average trade size so you can always be aware when a whale buys or sells.
What is CoinLobster?
CoinLobster is a live combined order book, trade and liquidation feed showing Bitcoin, Ethereum and DOGE with volumes across 10 of the most popular spot and perpetual futures exchanges.
You can visit us out at www.CoinLobster.com
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