Buy Wall vs. Sell Wall: What is it? How to Spot it?

Buy wall vs. sell wall is a key concept in trading. Whether you are trading stocks or cryptocurrencies, you need to understand what is a buy wall and what is a sell wall. Whales and experienced traders use these walls to enter or exit trades.

Therefore, if you want to know when to buy and when to sell, carefully understand the buy wall vs. sell wall concept. Additionally, it is also important to understand this concept because whales use it to manipulate the market. So, let’s start right away. 

Support and resistance levels

Before discussing buy wall vs. sell wall, it is important to understand the role of key support and resistance levels in trading. These key price levels are instrumental in pushing the prices of financial instruments in a specific way. In other words, prices tend to reverse upon reaching key price levels unless there is strong momentum to break these levels. 

Key support and resistance levels actually tell us about supply and demand. In other words, they indicate where financial assets are expected to be bought or sold. As a general rule, if prices approach a key resistance level, it indicates a sell wall where assets would be sold. On the other hand, if prices approach a key support level, it indicates a buy wall where assets would be bought. However, things aren’t simple as we are going to see in the next sections of this article. 

What is a wall?

The wall is a key concept in trading. It refers to price points where there are huge buy or sell orders. If you graph the volume of these buy or sell orders against price points, it looks like a wall. Therefore, it is known as a wall in trading. 

As you know, there are two types of walls. First is the buy wall where a huge number of buy orders are placed. Then there is the sell wall where a huge quantity of sell orders are placed. Furthermore, these aren’t simple levels where traders place buys or sell orders. These levels actually influence price movements. Therefore, understanding the buy wall vs. sell wall concept can transform your trading. It will help you understand and predict price fluctuations with precision. Thus, you will be able to set your limit orders with ultimate precision. 

Buy wall vs. sell wall

We can assume now that you know the importance of the buy wall vs. sell wall concept. However, it is important to learn why or how these walls form. They can undoubtedly transform your trading. At the same time, however, they can be harmful. Why so? Because these levels are also manipulation tools that whales use to manipulate the market. 

Buy wall

As you know, a huge quantity of buy orders makes a buy wall. Now, there are two possibilities. The majority of market participants place buy orders. On the other hand, a powerful individual or group with a lot of money places buy orders to manipulate the market. 

Now, why do prices are expected to rise after hitting the buy wall? It is quite simple. High demand means more buy orders and that leads to higher prices. 

Sell wall

Conversely, a huge quantity of sell orders makes a sell wall. Again, there are two possibilities. The majority of market participants place sell orders. Or, whales with bags full of money place sell orders to manipulate the market. 

Now, why do prices are expected to decline after hitting the sell wall? It is just the inverse case of why prices rise after hitting a buy wall. High supply means more sell orders than buy orders and that leads to higher prices. 

Buy wall vs. sell wall – how to spot buy and sell walls

How to spot buy and sell walls is the most important question in the buy wall vs. sell wall concept. You need to understand the market depth chart and order book to understand how to identify buy and sell walls.

Order book

Most of you probably know what an order book is. However, there are some who don’t understand what it is and why it is important. An order book is a raw list of buys and sells of a particular instrument. You see these orders organized by price level in the list. 

Now, how does an order get filled? When a sell order meets a buy order at the same price point. It is a simple case of supply meeting demand. However, if a buy order doesn’t match a sell order, the order stays in the order book. Furthermore, orders waiting to be filled in the order book get fulfilled in a sequence. That means orders cannot skip past one another. 

Market depth chart

A market depth chart is a visual representation of an order book. That means you can visualize unfulfilled orders on a chart. Price points are placed on the x-axis whereas volume is placed on the y-axis on the market depth chart. This graph is very important as it gives you a quick overview of where orders are being placed. Thus, instead of using an order book, look at the market depth chart to observe the market sentiment. 

Now, you can better understand buy wall vs. sell wall and how to spot them. A disproportionate large spike on the market depth chart is a wall. The spike slopes upward on both sides of the chart and resembles a wall. Therefore, it is called a buy or sell wall. 

You can also visualize orders in a traditional green and red color. If the green wall is higher, it indicates buying pressure. It is because there are more buy orders than sell orders. Conversely, if the red wall is higher, it indicates selling pressure. It is because there are more sell orders than sell orders and this will be a sell wall. 

Buy wall vs. sell wall – real vs spoofing

Buy and sell walls may form accidentally as well as intentionally. If there is a particular market sentiment, the walls will be accidental. These walls are real. On the other hand, whales may also place a huge quantity of orders and form a wall to manipulate the market. These individuals or groups of individuals have the resources to shape the market’s sentiment. It is known as spoofing. 

It is very difficult to differentiate between real walls and spoofing. Trading strategies of whales make it very difficult for retail traders. However, there are a few points you need to consider before entering a trade.

1. If there is a high volume of pending orders, there is a big chance that walls are real and vice versa.
2. See if there is a substantially big order instead of small orders. If it is, there is a whale in operation. Such walls get formed really quickly because the volume is low and the only reason behind wall formation is a single or a few big orders.