Using the orderbook to determine entries | Botspedia (2024)
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It is important to understand what an order book is and how its market depth chart can help you in determining entries for your trades.
It is important to understand what an order book is and how its market depth chart can help you in determining entries for your trades. This article will help you navigate through both.
The order book is a list of all outstanding limit orders to buy or sell a cryptocurrency. It is divided into a bid side and an ask side. In the former, prices are sorted from highest at the top to the lowest at the bottom. In the latter, it is the other way around. Each price level contains the following on Binance (order books on other exchanges might slightly differ):
Amount: The number of units from the order at this specific price level attempting to be traded. In other words, how many coins (e.g., BTCs) are available to be purchased or sold at this price level.
Total: How much it would cost you to buy or how much you would receive if you sold
When traders want to buy, they look at prices on the ask-side to find out what price the sellers are willing to accept. Vice versa, when they want to sell, they look at the bid-side to see how much buyers are willing to pay. Trade is executed once a buy order finds a seller or a sell order finds a buyer.
Depth Chart
The depth chart is a graphical representation of the order book. It visualizes the present supply and demand of a cryptocurrency on the market. The x-axis displays prices, and the y-axis shows the total of coins/tokens from all submitted orders up to that price. The graph is split into two sections: bids on the left and asks on the right.
On the bid size, you should pay attention to the graph from right to left. At each price level, you can see how many coins/tokens you would be able to sell at or above this price. On the ask size, you look at the graph from left to right. At each price level, you can see how many coins/tokens you would be able to buy at or below this price level.
In the example below, you want to sell 500 SOLs as quickly as possible. On the bid side, you notice that you may sell to orders: 1, 2, 3, 4, and 5 in part. If you wanted to acquire 500 SOLs, you would look at the ask side and see that you could purchase the whole sell order 1 and a portion of sell order 2.
You will often notice the so-called walls. These are the price levels at which a significant number of buyers/sellers have placed their buy/sell orders. They “block” the orders at lower price levels (bid side) and higher price levels (ask side) from being filled.
In other words, to bring prices down/up to a certain level, all buy/sell orders from higher/lower price levels must be filled. When demand suddenly decreases, prices naturally go down. In contrast, when there is less supply, the prices increase. This is best exhibited when major walls disappear.
To conclude, a market depth chart is a helpful tool for visualizing supply and demand and determining which one is bigger. Also, it helps traders determine the right price levels for their entries.
The order book helps traders make more informed trading decisions. They can see which brokerages are buying or selling stock and determine whether market action is being driven by retail investors or by institutions.
In simple language order book means it shows the overall bid-ask and order sizes, where bid means the price, buyers are willing to pay and ask means the price, sellers are asking for what they are selling. Order book depth shows the number of orders at different price levels.
The concepts of "amount" and "price" are relevant to both sides. The "amount" refers to the total units of the cryptocurrency someone is looking to trade, whereas the "price" is the value of each unit. These orders are then matched by a cryptocurrency exchange to facilitate trades.
The OrderBook indicator displays open trades and pending orders of retail traders as a two-sided histogram. It is used for the comprehensive analysis of market sentiment for a particular financial instrument.
Order book officials are employees of the exchange and cannot trade for their own accounts. Their sole responsibility is to maintain the market for their assigned listed options, including executing orders remaining on the book.
Spoofing refers to manipulating order books by placing and canceling fake orders. Traders and algorithmic bots that use the structure of order books as a trading indicator to front-run the market are deceived by this activity.
The most common example is the order being fulfilled based on the current market demand and supply. The order is being bought or sold according to the current market price. Another example is when a trader employs limit order strategies.
Order book value is a list showing buy orders and sell orders of a particular security or financial instrument. The order book value lists the total number of shares that are either bid or offered at various market depths, which can demonstrate market interest for a particular security or financial instrument.
For example, the “Bid Volume 10%” for BTC/USD on Coinbase would represent the volume of all bids for BTC falling within 10% of the mid price at which the order book snapshot was taken. To calculate the depth, we would add up the volume of all bids placed within this 10% price range.
The primary difference between order book and trade book is that the order book is a reflection of all the orders that have been placed while the trade book is a reflection of the trades that have actually been executed.
An order book is an electronic or written list of all the buy and sell orders investors have made for a particular security. It lists the prices buyers and sellers are willing to pay, and how many orders are submitted for the particular price. Investors use order books for technical analysis of potential investments.
They are read from the bottom upwards, i.e. starting with the cheapest price (Best ASK). The cheapest price is always placed just above the spread. If you read the prices, you will notice that they are placed in ascending order, from the lowest price to the highest price, and are generally also executed in this order.
The actual form of spoofing can vary, however it usually involves the placing of non-bona fide orders on one side of the order book which are then cancelled immediately or soon after.
The market order which you place in the stock market is executed in real-time at the current market price. This is one of the simplest orders, but as the market fluctuates you need to verify before placing an order as it gets recorded in the order book and also gets recorded in the trade book simultaneously.
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Level 2 data shows what is called the "order book" for an asset, or the list of orders that are placed for buying and selling a particular asset over time.
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