Reading the Depth Chart
A depth chart plots cumulative buy orders (descending from left to right) and cumulative sell orders (ascending from left to right). The gap between them at the current price is the spread. The slope of each side indicates how quickly available liquidity changes as price moves away from the current level.
A steep curve on the buy side means dense bid support: lots of orders clustered near the current price. A shallow curve means thin support: bids are spread out across a wide price range. The steepness predicts how far price will fall before encountering significant buying interest.
Walls and Their Reliability
A "wall" is a disproportionately large order at a specific price level. Buy walls suggest strong demand at that price. Sell walls suggest strong supply. However, walls are not always genuine. Some are placed by traders who intend to cancel them before execution, using them to signal intent or discourage trading in their direction. A wall that has been sitting at the same price for hours is more likely genuine than one that appeared moments ago.
Practical Application
For execution, depth charts help you choose order types and sizes. If the sell side is thin above the current price, a market buy order will push price up significantly. A limit order at a specific price avoids this impact. If the buy side is deep, you can sell a larger quantity without significant slippage. Reading depth before placing orders is a simple habit that improves execution quality on every trade.