How to understand a Market Depth Chart to determine liquidity Medium

A liquid asset will have a depth graph where both green and red sides nearly mirror one another, reflecting almost perfect amounts of supply and demand on their respective sides. An illiquid asset will display a depth chart where supply and demand are not represented equally such as the one below. Stocks with a strong depth of market tend to be popular large-cap companies like Apple (AAPL). They usually have strong volumes and are quite liquid, allowing traders to place large orders without significantly affecting their market prices.

This is the standard functioning of the Market Depth Historical Graph study for price levels on chart bars where there have been no market depth updates but the prior depth levels have not been deleted by the data feed. A depth chart illustrates the supply and demand sides to show how much of an asset you can sell at a particular market price. It is a graphical representation of orders for a specific asset at various prices. A depth chart helps traders understand a trading pair’s overall supply and demand.

Ten levels of depth

That is, the market assumes that the people making large orders have more or better information than the people making small orders. So if a large buy order is put in, smaller traders will race to join in, assuming there is something they don’t know. Market depth, or market depth chart depth of market (DOM), is a measure of liquidity in a stock or derivative that shows how the price will be affected by a new order. Market depth is typically presented as a table of current bid-ask prices and how many traders are willing to purchase at those prices.

Traders may be persuaded to sell an asset and make a profit right away, or to buy an asset and make more money over the long term if they see a large or expanding buy wall. The vertical axes on both sides of the chart represent the total volume of an asset pair being bought and sold. Trade with any supported broker https://www.tokenexus.com/the-interesting-bitcoin-mining-history/ from the DOM; simply choose the broker and type in the symbol. DOM data is streamed from the broker and may require special subscriptions to receive it. The limit level of such orders is duller in color, and the Stop level is more vibrant. Click the label with the number next to the DOM – this is your order label.

For Traders

Purchasing a block of shares may have a noticeable impact on the stock’s price. If a stock is extremely liquid, it has a large number of both buyers and sellers. A buyer can purchase a large block of shares without causing a substantial stock price movement. You can also use this table to determine what prices you will pay for a large order. You would be able to buy 25 shares at $5.10, 50 at $5.30, and 100 at $5.56. In major exchanges in the US, ticks were decimalized, which led to an increase in the overall market depth.

• Market depth can be evaluated by looking at the order book of a security, which consists of a list of pending orders to buy or sell at various price levels.
• To do this, set the Bid Quantity Numbers Color and the Ask Quantity Numbers Color Inputs to the colors that you want.
• A candlestick chart displays an asset’s price changes over a predetermined period.
• If the local computer clock is being used for time stamping, it is recommended that your computer’s clock be set extremely accurately and synchronized multiple times an hour to a network time server.
• A depth chart illustrates the supply and demand sides to show how much of an asset you can sell at a particular market price.

The color intensities for blocks with quantities between the lowest quantity and the highest quantity and within a particular color range correspond to a linear scale between the 0% and 100%. The use of a particular color range is determined by the values entered in the Percent Color Thresholds or Actual Color Thresholds depending on the setting for Use Percent or Actual Values for Threshold Levels. A greater value for this Input will effectively increase the visibility of blocks towards the bottom of each color range, but decrease the overall contrast. Whereas a lesser value for this Input will increase the contrast between blocks, but decrease the visibility of blocks towards the bottom of each color range. Market depth charts show the supply and demand for a cryptocurrency at different prices.

Predicting Stock Prices with Machine Learning

Within the trades, the total breadth and the level of open orders made are considered. With a depth chart, cryptocurrency exchanges frequently offer a second chart, a candlestick chart. A candlestick chart displays an asset’s price changes over a predetermined period.