Technical Analysis: Depth Charts

depth chart

What is a depth chart?

The depth chart is one of the most useful tools most traders use, so they know the demand and supply at different prices of a particular cryptocurrency, stock, or commodity.

The order book is an electronic list that shows the buy and sell orders, as well as the number of cryptocurrencies in the bid at each price point. The depth chart is a graphical representation of the orders and suggests the behavior of the market.

The graphical representation reveals the volume of the orders at its equivalent value as well as the status of the market. The sharp lines are known as the “angles” also show the intensity of the trading events. It indicates the drive prices in different directions, revealing the wide gaps between the orders and points on where to enter or to exit.

Bids and Asks

A depth chart for the bid/ask market has two lines. The green line is for bids which indicates buy orders, while the red line is for asks which represents sell orders.

The line on the chart is made up of the plotted dots. Each dot indicates the value of how much you can trade on that instance.

To plot the bids, you should add up all the bids you can see on the price point or below it. Then, plot the total that runs along the vertical axis at the left side of the chart which represents the total dollars of orders.

Plotting the asks also has the same concept, only that the total accumulated amount is shown on the right-hand side of the chart. If the bid value shows up in BTC or bitcoin, but you will notice that it stretches out to the values corresponding to the Dollar amounts on the left vertical axis.

Once you got understand all these indicators, simply hover your cursor towards the green or red line, and it will show you how much exactly you could sell or buy, respectively.

Conclusion

Reading the depth chart is very straightforward and you can treat it like a balancing scale. The price drifts in the direction where the scale is more substantial. Use depth charts as one of your trading tools because it gives you better insights on the values you can either buy or sell.

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