Need help to understand and analyse Orderbooks

[privacyn3on]

Hi,

I am sort of new to trading. I have been into crypto currencies for quite a few years but I haven't actively traded. I find it quite fascinating and interesting to analyse the charts and figure out patterns. Once the patterns are figured out, it is fun to realize that the market is predictable to an extent.

One of the things which I would like to understand really well is how to analyze the order books on the exchange and what should I infer from them? Are they an indicator of price, resistance and support levels?

Here is what I do at present:

1. On any one exchange, I check the Sell and Buy Order books. My first question here is, these sell and buy order books move so fast that it is difficult to look at them and analyze in real time. Is there another way to do it? The rows keep moving up and down as and when the orders get executed.

2. Sometimes, I see the Sell order book moving much faster than the buy order book and this is usually at the time when the market is going down. So, I think this is self explanatory.

3. I see a few big sell orders at a certain price X which is Y% greater than the current price. Does that indicate a high resistance level at the price X? Can I expect the market to go down once it reaches the price X if there are a lot of sell orders at that price? Is there a better way to analyze?

4. I sometimes check the Trade History on the Exchange and I can see more Sell orders than Buy orders (or vice versa) at any given instant. But this kind of analysis is not fruitful since it is manual and also a bit vague.

I think it would be great if I could chat with someone in real time who is an experienced trader just to understand all this better. If you would be willing to chat and discuss, please send me a private message

[ryzaadit]

1. On any one exchange, I check the Sell and Buy Order books. My first question here is, these sell and buy order books move so fast that it is difficult to look at them and analyze in real time. Is there another way to do it? The rows keep moving up and down as and when the orders get executed.

2. Sometimes, I see the Sell order book moving much faster than the buy order book and this is usually at the time when the market is going down. So, I think this is self explanatory.

3. I see a few big sell orders at a certain price X which is Y% greater than the current price. Does that indicate a high resistance level at the price X? Can I expect the market to go down once it reaches the price X if there are a lot of sell orders at that price? Is there a better way to analyze?

4. I sometimes check the Trade History on the Exchange and I can see more Sell orders than Buy orders (or vice versa) at any given instant. But this kind of analysis is not fruitful since it is manual and also a bit vague.

I think it would be great if I could chat with someone in real time who is an experienced trader just to understand all this better. If you would be willing to chat and discuss, please send me a private message

The sell order you are talking about at order book was executed by bot, some trader/user who has a huge fund sometimes using order book to make a wall on Sell/Buy went they want to pump/dump the price. The order book bot, always moving went some trader above or below his order so basically it's kinda hard to follow the movement of order book by bot if you doing put an order by manually.

Also, they created a fake transaction history order, they have 2 accounts and buying each order book by themself to make attention for other traders. To identify a fake transaction order, you can see the if the order has the same amount + time the order was executed by the same person.

[exstasie]

One of the things which I would like to understand really well is how to analyze the order books on the exchange and what should I infer from them? Are they an indicator of price, resistance and support levels?

I really don't like order book analysis. There are so many games being played, spoofing, and so on. I prefer to focus on price action.

On any one exchange, I check the Sell and Buy Order books. My first question here is, these sell and buy order books move so fast that it is difficult to look at them and analyze in real time. Is there another way to do it? The rows keep moving up and down as and when the orders get executed.

It depends on the exchange. Some also have full order books on a separate web page, like Bitfinex: https://www.bitfinex.com/order_book

Others, like Kucoin, don't. In those cases, you're stuck with the crappy truncated order book on the trading page.

I see a few big sell orders at a certain price X which is Y% greater than the current price. Does that indicate a high resistance level at the price X? Can I expect the market to go down once it reaches the price X if there are a lot of sell orders at that price?

Possibly, but it's important to remember these orders can be removed at any time. I prefer to first identify support/resistance on the chart. Very high volume usually occurs at inflection points, so high volume wicking through resistance is usually a good sign of a top.

[privacyn3on]

Possibly, but it's important to remember these orders can be removed at any time. I prefer to first identify support/resistance on the chart. Very high volume usually occurs at inflection points, so high volume wicking through resistance is usually a good sign of a top.

This is interesting. Can you elaborate more on this? How to identify the support/resistance levels? And how does high volume play a role here?

At present, I just look at the chart manually and look at the points where the price action went reverse sharply. I sometimes see the price reaching the same peak a couple of times and then there is a sharp drop in price. So, I call that a resistance level. I am not sure if that is the correct way of identifying?

[roycorp]

dont trade by just looking orderbook. they are fake mostly.
check where most trader are trading at. try  heatmaps

[privacyn3on]

dont trade by just looking orderbook. they are fake mostly.
check where most trader are trading at. try  heatmaps

Could you explain more where to check the heatmaps? And if possible, please elaborate with an example how to infer the data seen on the heatmaps to make a decision while trading. Thanks.

[exstasie]

Possibly, but it's important to remember these orders can be removed at any time. I prefer to first identify support/resistance on the chart. Very high volume usually occurs at inflection points, so high volume wicking through resistance is usually a good sign of a top.

This is interesting. Can you elaborate more on this? How to identify the support/resistance levels?

You'll want to identify price pivots, moving averages, trend lines, round psychological price levels ($100, $1000...), Fibonacci retracement levels, and so on.

See here: Support and Resistance Basics
And here: Identifying support and resistance levels

And how does high volume play a role here?

See here: How to Use Volume to Improve Your Trading

In a rising or falling market, we can see exhaustion moves. These are generally sharp moves in price combined with a sharp increase in volume, which signal the potential end of a trend. Participants who waited and are afraid of missing more of the move pile in at market tops, exhausting the number of buyers. At a market bottom, falling prices eventually force out large numbers of traders, resulting in volatility and increased volume.

Imagine a market that's been in a strong uptrend for a while. You've identified a technical resistance area. The market spikes through that resistance area on very high relative volume and quickly declines back below resistance. This is a possible indication the uptrend is exhausted, and "everyone who wants to buy has already bought." The confluence between technical resistance and high volume is an indication to be wary of your exposure to longs and consider taking profit.

At present, I just look at the chart manually and look at the points where the price action went reverse sharply. I sometimes see the price reaching the same peak a couple of times and then there is a sharp drop in price. So, I call that a resistance level. I am not sure if that is the correct way of identifying?

Yes, that's definitely one form of technical resistance level.

[privacyn3on]

@exstasie: Thanks for the useful insight into trading. I studied more about it. I checked the links you shared related to using Volume for improving the trading, there is a section in that article which explains how to use Volume to identify bullish signs.

Specifically:

"Volume can be very useful in identifying bullish signs. For example, imagine volume increases on a price decline and then the price moves higher, followed by a move back lower. If the price on the move back lower stays higher than the previous low and volume is diminished on the second decline, then this is usually interpreted as a bullish sign."

So, I applied this knowledge to the XRP/USDT chart on Poloniex today and I think I understood it correct. Could you please check the screenshot I made and tell me if I understood it correct?

1. Price was declining and volume was increasing
2. Price increased and volume decreased
3. Price decreased again but now the new price low was greater than previous price low (with a reduced volume)

So, based on the idea mentioned in article, this would indicate a bullish sign?

I do see in the chart that price started moving up sharply shortly after this.

https://images2.imgbox.com/9e/a0/e0Ff208x_o.png

[MURONDI]

I have been trading for a long time, but I am not an experienced trader, there are many trade indicators, Orderbooks can also be called indicators because they relate to trade information, every trader has a different favorite indicator, so not all indicators are suitable for every trader, look for indicators that can make you comfortable, don't force it to understand indicators that don't suit you.

[avatar_kiyoshi]

I'm not an expert, but I will share my experience here.

1. On any one exchange, I check the Sell and Buy Order books. My first question here is, these sell and buy order books move so fast that it is difficult to look at them and analyze in real time. Is there another way to do it? The rows keep moving up and down as and when the orders get executed.

Don't depend on the order book only. Every traders can remove their order and there is a trading bot that playing on the market too.

3. I see a few big sell orders at a certain price X which is Y% greater than the current price. Does that indicate a high resistance level at the price X? Can I expect the market to go down once it reaches the price X if there are a lot of sell orders at that price? Is there a better way to analyze?

These sell order can be removed anytime, watching the platform to see the price movement is require much time and it's not guarantee if the sell order will be execute.
I think it's better to look back at the last resistance line, if it match with these sell order it's possibly that indicate a high resistance level.

[exstasie]

@exstasie: Thanks for the useful insight into trading. I studied more about it. I checked the links you shared related to using Volume for improving the trading, there is a section in that article which explains how to use Volume to identify bullish signs.

Specifically:

"Volume can be very useful in identifying bullish signs. For example, imagine volume increases on a price decline and then the price moves higher, followed by a move back lower. If the price on the move back lower stays higher than the previous low and volume is diminished on the second decline, then this is usually interpreted as a bullish sign."

So, I applied this knowledge to the XRP/USDT chart on Poloniex today and I think I understood it correct. Could you please check the screenshot I made and tell me if I understood it correct?

A word of caution about applying volume analysis (and TA in general) to relatively illiquid markets. To put it simply, the smaller the market, the less reliable TA will be due to lack of consistent volume. XRP's huge market cap masks how small the market is. If you are going to chart it and analyze volume, I'd recommend watching Binance or Bitfinex instead of Poloniex.

Here's an example on the BTCUSD chart of what I think the article is trying to convey:

[pooya87]

I'm not an expert, but I will share my experience here.

1. On any one exchange, I check the Sell and Buy Order books. My first question here is, these sell and buy order books move so fast that it is difficult to look at them and analyze in real time. Is there another way to do it? The rows keep moving up and down as and when the orders get executed.

Don't depend on the order book only. Every traders can remove their order and there is a trading bot that playing on the market too.

3. I see a few big sell orders at a certain price X which is Y% greater than the current price. Does that indicate a high resistance level at the price X? Can I expect the market to go down once it reaches the price X if there are a lot of sell orders at that price? Is there a better way to analyze?

These sell order can be removed anytime, watching the platform to see the price movement is require much time and it's not guarantee if the sell order will be execute.
I think it's better to look back at the last resistance line, if it match with these sell order it's possibly that indicate a high resistance level.

you are overthinking it. looking at orderbook "depth" (which is the chart that looks like a V where the buys and sells merge in the middle) is just an analysis so that you can add another reason for making certain trading decisions. for example you want to buy expecting a price rise then you place a couple of buy orders around the support level (a big chunk above, small chunk higher above, small chunk below and another smaller way below the support).
nothing in trading is guaranteed, so you just analyze to the best of your abilities and make a move based on changing market conditions and change those decisions with the sudden changes.

[Negotiation]

I agree with you but in addition to these, there are different tricks before you trade and try to follow these tricks well. Order books cannot provide full support to you. Try to prevent these and try to invest in places that are reliable and popular by doing research and observation before trading.

[DevilSlayer]

I'm not an expert, but I will share my experience here.

1. On any one exchange, I check the Sell and Buy Order books. My first question here is, these sell and buy order books move so fast that it is difficult to look at them and analyze in real time. Is there another way to do it? The rows keep moving up and down as and when the orders get executed.

Don't depend on the order book only. Every traders can remove their order and there is a trading bot that playing on the market too.

3. I see a few big sell orders at a certain price X which is Y% greater than the current price. Does that indicate a high resistance level at the price X? Can I expect the market to go down once it reaches the price X if there are a lot of sell orders at that price? Is there a better way to analyze?

These sell order can be removed anytime, watching the platform to see the price movement is require much time and it's not guarantee if the sell order will be execute.
I think it's better to look back at the last resistance line, if it match with these sell order it's possibly that indicate a high resistance level.

you are overthinking it. looking at orderbook "depth" (which is the chart that looks like a V where the buys and sells merge in the middle) is just an analysis so that you can add another reason for making certain trading decisions. for example you want to buy expecting a price rise then you place a couple of buy orders around the support level (a big chunk above, small chunk higher above, small chunk below and another smaller way below the support).
nothing in trading is guaranteed, so you just analyze to the best of your abilities and make a move based on changing market conditions and change those decisions with the sudden changes.

Actually there is a skill about reading sell orders and bid orders. It is a specialized skills if you want to go advanced technical analysis skills. For those newbies, it is expected that they will get confused about it but those professional traders are using it to identify the support and the resistance. There are a lot of studies about it, I learned that technique in international market and for me it is effective to use.

[1Referee]

Order books cannot provide full support to you. Try to prevent these and try to invest in places that are reliable and popular by doing research and observation before trading.

I have legit not once paid attention to an orderbook before placing a trade. It's just not a viable metric (if you can call it even that) with how easily it is to spoof, plus exchanges some times tend to fill up their own books just to mask the gaps between certain price points. What do you think will happen when the price reaches near those orders? Yep. They will be pulled back in an instant.

Another thing is that nowadays more exchanges provide additional features to their whale traders that regular users can't tap into. Hidden orders is such a feature. The only way for you to know that there is a hidden order is when there is a lot of buying/selling happening at a certain level without the price actually moving.

[el kaka22]

For one, those things move so fast because there are moves so fast, if you check the order book on a larger scale it won't move that fast, all you have to do is instead of checking like 5 minute intervals, check like 1 day and it won't move (you can make it even larger or smaller if you want). Second one is already answered by you anyway.

Third one is a bit complicated because it doesn't have to go down after it reaches there, sure there is a bigger likeliness to go down than go up but it can also break through the resistance as well. Fourth one only means people sold to market price more often than they bought at market price, that's it. That is about all you need to know from your questions, if you have any further questions please do not hesitate to ask more.

[Vantage Crypto]

I am surprised no one mentioned https://vcdepth.io the site has global order books, combined or filtered by exchange and you can set depth of market from current price to get a better capture of what is in play.  Its also the only site with historic market depth data.


Here is a fast tutorial of the site > https://www.youtube.com/watch?v=qjLmB0gtG3M
This bitcoin trading challenge guy has a bunch of videos on using this site and a few other great market depth tools > https://www.youtube.com/watch?v=VqZOPa9G-5E


Good luck