Understanding the Market Depth Graphs and the Pricing Changes

Until you start trading more seriously you will realize how useful are all the graphs and metrics given from exchange sites such as Poloniex or Kraken. Now that I am coding my trading robot, one of my concerns is the ability of risk prediction. Taking a look into Market Depth graphics half-satisfy my need.

What kind of Information does a Market Depth Graphic give and what It does not

A market depth graphic is a concentrate of the selling or buying opened orders. It has in its ordinate the pricing of the market. In this example, it has the pricing of the BTC/USDT market. The abscissa shows the currency quantity. In this example, it is the total of BTC hold in opened orders.

As I have already told you, market depth graphics are created from the information of the opened orders.

If you use the information from the first column (Price) and the second one (BTC) you will have as a result this graphic.

Market depth graphics can tell you how serious a pricing change could be in the current market (in this example BTC/USDT). But it can not tell you when it will happen, nor what direction the price will move. If it moves, the change will be predicted according to the information of this graphic. Do not forget that the speed of the events it is linked with the volume of transactions. BTC/USDT market is one of the most liquid, the change will happen within a day according to my experience. On the other hand, QBK/BTC is almost static, it could pass weeks until something happens.

Happy trading!