Picking entrance and exit points is one of the most difficult things to do as a trader. Cryptocurrencies fluctuate every second and it can be difficult to predict the best support and resistance levels. In an ideal world, you are going to want to buy a coin at the support level. Let the coin bounce up near the resistance, and then sell the coin for a nice gain. The issue is that sometimes the lines that you draw for resistance levels are not accurate enough.
If you draw a line that is too high, you end up missing your gain because the coin’s price falls before it hits your sell order. If you draw the line too low, you end up missing out on a part of your gain because the coin ends up going higher than your sell order. Using the order book is one of the best ways to find the exact levels of support and resistance. Additionally, it can be used when there are no support and resistance lines visible.
The order book is a visual representation of all of the orders that are being made for a specific coin. In this video, I use Bitcoin as an example. The green part of the order book shows all of the bids and the red part shows all of the asks. A bid is a buy order at a specific price lower than the market price (it does not technically have to be lower but it should be). An ask is a sell order at a specific price higher than the market price.
Using the visualization of the order book, it is possible to spot buy and sell “walls”. These walls are areas where a large amount of money is trying to be used to buy or sell at that price. For example, Bitcoin currently has a large sell wall at 8100 USDT. With this in mind, it is reasonable to believe that the resistance is near 8100 USDT. As a trader, you are going to want to place your sell order below that price so that you are able to capture the gain you are looking for.
On the flip side, a buy wall is going to show you where the support levels are. In this video, Bitcoin has a trading zone between 7950 USDT and 8100 USDT. This zone was created by simply using the order book. The order book is powerful and can be used to perfect your trading strategy.