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What is a depth of market indicator and how to analyze it?

In their interviews, many top players of TO THE MOON Game advise not only to look at the charts on the site of the Binance exchange, but also to analyze such measures as depth of market. What this indicator is and what it is needed for — let’s try to figure out in our article.

In simple terms, depth of market (DoM) is data on current orders to buy or sell a crypto asset, classified in a table. This indicator shows the mood of players in both trading and investing.

In the digital market, as in the ordinary market, there are such participants as the buyer and the seller. The latter offers his price for the instrument that he intends to sell, and the former agrees to the proposed price and makes a deal or tries to find a more profitable (cheaper) offer. This is the way pricing takes place in the market.

To make a deal, the seller creates an order. There are three types of orders:

  1. Market order. In this case, the buyer does not want to wait and will agree to any of the seller’s terms.
  2. Limit order. The buyer sets the purchase price. However, if the price is too low, they may not find a seller who would agree to such an offer.
  3. Conditional. These are so-called stop orders, that is, a ‘safety’ option in case the market does not go in the direction that the trader expected. If the stop order is triggered, the order will ‘turn into’ a market one and will be executed at the market price.

DoM displays only limit orders, that is, orders with a set value, and is a list of current buy and sell orders from the highest to the lowest price.

If supply exceeds demand, the price of the asset will fall. And on the contrary, if demand is higher than supply, then there will be a shortage in the market and the price will rise. The main feature of the cryptocurrency market is its volatility — a lot depends on supply and demand.

Now let’s figure out what a glass is, and to do this, look at the screen below — this is a real example taken from the Binance exchange website.

On top are the ‘red’ prices. These are the prices offered by the sellers. They are always higher than the market price and are called ‘asks’ (i.e. demand).

Below you can see the ‘green’ prices, buyers’ prices, or ‘bids’ (offer).

The screenshot shows that a large number of users want to sell BTC for $37,500 (volume 83.917162), while the number of buyers willing to buy bitcoin for $36,800 (volume 42.114934) is much smaller. Thus, after selling the entire volume of coins at a price of $37,500, the value of the asset will fall to about $37,000.

If there are a lot of buy orders for $37,000, then BTC will grow. If there are no people willing to buy a coin for this price, and buyers continue to ‘stand their ground’, that is, stick to the price of $36,800 with a volume of 42.114934, bitcoin will continue to decline.

If the entire volume of coins is sold for $37,500, and the number of purchase orders exceeds or equals the sale volume, then BTC will grow. However, the market does not stand still, and the number of buy and sell orders constantly changes depending on the decisions of users (their psychology and experience).

You can also analyze DoM using a depth chart (it displays the same data as in the screenshot above, but in a different format). Choose the most suitable option for you.

In this case, selling prices are higher than buying prices, so the price will not grow in the near future, but the situation may change.

How to use this indicator in trading?

First of all, you need to select the appropriate indicator on the chart and find the support levels (highlighted in green) or resistance levels (highlighted in red). For example, if an asset fell, and then turned at a certain mark and went up, it means that it made a rebound, and such a level from which the asset bounced can be called support.

To understand how the asset will behave next time around this level, the trader analyzes the DoM indicator. If they see that a large purchase order is located in this area, most likely, the market participants will buy the asset again, and it will rise. If, on the contrary, a large sell order was seen, most likely, bears (sellers) will enter the game, and the asset will continue its downward movement.

Another example — the market is falling across the board, but suddenly some asset starts to strengthen. With the help of DoM, you can understand whether it was a real reversal (trend change) or just a correction.

For TTM Game races, it is very important to analyze this indicator, because it can tell you which direction a particular tool will go. DoM is one of the most important tools. In the following articles, we will talk about other important indicators.



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