The term “sell wall” refers to one or more large limit sell orders at the same price on an order book. In most cases, a large enough sell wall can cause unrest in the market, as people anticipate a drop in price due to the massive downward pressure applied by the large order.
Due to the fact that sell walls must be substantial if they are to have an effect (in terms of financial value), they are generally placed by high net-worth individuals, or whales, in an attempt to manipulate the market to their advantage.
What’s the point of a sell wall?
As we just touched upon, one of the main reasons “whales’ create sell walls is so they can suppress the price and prevent the asset from reaching a certain price threshold. This forces the asset to trade within a specific range unless, of course, the wall is broken down with significant buying pressure.
However, most of the time, these large sell walls are merely created to scare the market, as they signal to traders that the price will not be able to rise above a specific point in the market. As the perceived difficulty of breaking through the wall is too high, many short-term traders will not even attempt to break through the wall, and as a result, they may remove their buy order. Some may even enter sell positions in anticipation of a market drop – and et’s be honest, it’s hard to blame them.
A big sell wall is typically a sign that once a specific price is reached, available supply will quickly increase, driving down both demand and price.
With that said, the effectiveness of any given sell well varies depending on a multitude of variables that must be taken into account. For starters, some sell walls may be arbitrary and happen purely by chance, as a large number of small investors happen to place sell orders at a similar price.
However, and this is an important point, most sell walls are not intended to be filled. Instead, once the price action nears the wall, the person who created it will usually remove it and place it somewhere else in the book.
What to do when you see a sell wall?
With the above in mind, you shouldn’t panic when you see a sell wall in the order book. Instead, you should keep your wits about you and observe how the market reacts because once the wall is removed (or broken), the price can move to the upside quite aggressively.
It helps to keep in mind that the fundamental purpose of a sell wall is to cause panic in the market and to encourage weaker hands to sell under the impression that the market is about to tank. After all, when a considerable amount of cryptocurrency is being sold, people tend to get a little anxious.
Finally, remember that a wall can vanish at any time, so be wary of its legitimacy, especially if they’ve only recently been added to the order book. As the now cliched but truthful adage goes:
“Be fearful when others are greedy, and greedy when others are fearful.”Warren Buffet