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What is a depth of market, what does its analysis give and how to use it?

  • Metatrader
  • trading
  • market
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In order to answer all these questions, you need to understand that buying and selling of cryptocurrencies or any other asset on the exchange is an auction. A seller wants to sell his goods at the best price (above the market), a buyer – to make the most profitable deal (below the market). Desires, both the first and the second are brought in the special table which has a set of names: the order book, the depth of market and even a bucket.

Transactions made at the market price occur instantly and do not appear in the table, that is, the depth. It does not reflect the operations of active traders who enter the market and make transactions at the price that suits them at this particular moment, without waiting for the quotes to reach a particular level.

In the broad sense, the depth of market is a register of intentions, in which slow traders (whom I call passive traders) indicate the prices at which they agree to buy or sell a certain number of coins.

Why is the depth of the market interesting for investors and why is it worth paying attention to? This should be done at least because, unlike the vast majority of other exchange-traded instruments, the depth of market allows you to predict the behavior of the market with a sufficiently high degree of confidence, that is, it is a leading indicator of its state.

How does it work? For example, if we observe the book of orders for some long time and see that a significant number of sales orders have been canceled, not fulfilled, most likely, the quotes will go down very quickly. Such an algorithm of asset value behavior is also fair in the opposite direction.

A careful study of the order book allows you to notice the appearance of large players in the market in time, the activity of which can greatly affect the quotes of cryptocurrencies. In addition, with the help of the depth of the market, you can accurately determine the nearest support and resistance levels.

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