What is the theory behind buy/sell walls and how to counteract them?

[RaptorRed]

 Occasionally a huge wall will appear on the buy/sell side and then disappear as the price approaches it. When a seller does this, what are they trying to accomplish (and why does it work)? When there is a buy wall is it the opposite intent?  If Casual Joe Bitcoiner sees a sell wall, what does he do to defeat it, or is it better to go with the flow and support the action the wall is trying to force?

[rayfloyd]

Bitcoin price 990$
Put 1000 btc sell order @ 1000$
price approach wall
remove wall
illusion of wall broken down
buy buy buy in the mind of people
dump coins at higher prices once it stabilizes higher than it would have
make a crash
buy coins lower

That's what I see from it

[Hawker]

The theory is very simple.

mtgox is a tiny market with low liquidity.  This means its hard to buy or sell a lot of bitcoin at once.

So if you want 1000 Btc, your buy order appears as a "wall" on the charts.

As the market grows, there will be no walls as you will be able to dump all 1000 at once and the liquidity of the market just soak them up.

[RaptorRed]

To be more specific, there are buy/sell orders which are absurdly large (10,000 BTC when most transactions < 10 BTC).  Seeing a buy order that is 10,000 BTC pretty much stops the price from dropping below the price of the buy order. But as soon as the price does hit it, the buy order disappears without completing. Does this encourage the price to drop, or is the wall created to stop the price decrease and encourage an increase? When you see a wall, what does that indicate would likely happen next (ie a buy wall means the price will likely go up since it can't go down below the wall).

[aylwood]

It's a standard technique when trading.
If you want to buy:
1. Enter small bid stack.
2. Enter large sell stack, close to the bid
3. Other sellers see the wall, get impatient, and hit your bid.
4. If it looks like your sell orders may get hit,  remove the wall immediately.

If you alternate this buying and selling, you make profit on the price spread.

[beetcoin]

yeah, like everyone said, it's just an artificial way to manipulate the perception of the value of BTC. at least that's how i understand it.

i don't have a lot of experience with this either though, and i'd like to know: if it's at $990 and you put a buy order at $1,000.. doesn't it automatically buy at that price, or do you need to confirm when BTC hits 1k? couldn't the walls be prevented if you are forced to buy at the price point of your order?

[aylwood]

if it's at $990 and you put a buy order at $1,000.. doesn't it automatically buy at that price, or do you need to confirm when BTC hits 1k? couldn't the walls be prevented if you are forced to buy at the price point of your order?

for a professional trader it's all about getting the best price you can, buying or selling.
So if the current price is $990, you don't put in an order at $1,000 of course.
You put in an order for say $900, and try and move the action down towards your bid.
You can do this by putting a "sell wall" (with no intention of actually selling).
Sellers behind that wall will get no bids unless they jump the wall (lower their offer price) hence moving them towards your lower bid price.
It's mostly psychological, but it works, as most newbs can't work out what is going on...

the way to overcome them, if you have the money and the stones, is to take out their wall in one hit, before they can move it.
annoys the shit out of them, loses them money and makes them think twice about doing it in future.
The games that go on...

[NUFCrichard]

What I have seen on smaller markets is that someone puts up lots of coins to sell.  Given the sort term nature of the markets, people look and think that the rise is limited by this large wall.
They then think that they should take protfit, undercutting the wall.  This continues and buys dry up, and the price falls significantly.  In a rising market this often happens a few times until confidence is gained that the price is fair, then the wall gets eaten or removed.