If you’re new to the world of digital currencies (or you’re not) and you don’t understand how to read a crypto depth chart, then we’re here to help. The first thing you’ll need to do is buy some bitcoin or maybe your favorite altcoin like Litecoin or Ether.
Once you have your preferred currency, you can move right into trading on platforms like Binance, Kraken, and Coinbase Pro. On these exchanges, you’ll see various charts and graphs showing the history of orders, bar charts, candlesticks, and depth charts.
A depth chart is a tool which shows you what you need to know regarding supply and demand. With it, you can see a visual representation of the supply and demand of a specific digital asset, assuming you know how to read it. Here is a quick summary to help.
Green Lines vs. Red Lines
You’ll notice two lines on a depth chart. These are the bid and ask lines. More often than not, an exchange will show bid orders, or buy orders, as a green line and the ask orders, or sell orders, as a red one.
The lines on the chart are created through the use of plotting dots. Each dot on the depth chart shows how much you can trade at a given point.
Bid orders are placed using dollars. For example, you might want to purchase two bitcoin at $9,500 each. This means that the total size of your bid is $19,000 for a trade that comes in at $9,500 or less.
On the other hand, your ask orders are done through bitcoin. You enter how many bitcoin you want to sell at a given price. So maybe you have three bitcoin for sale at $9,750 or more.
To plot out the green line, or the bids, you place a dot on the horizontal access at every point. For example, you’d place a point at $9000, $9100, $9200, and so on. Tally the bids at each price point or below and place a dot representing that number on the vertical axis. This represents the total dollar amount at that level.
The Ask, or red line, uses the same idea; however, you’ll use the total accumulated value on the right side of the chart. This shows in terms of bitcoin, but it is moved out so that values correspond to the USD totals on the left.
So, for example, if you’re marking the price at $9,500, then your mark for 100 bitcoin would line up with the $950k mark on the USD side of the vertical axis.
Knowledge Is Power
This means that you can place your cursor at any point on the Bids line and know how much you could potentially sell at a given price. You can do the same on the Asks line. Put your cursor anywhere and know precisely how many bitcoin you can buy at a given price.
This is just the tip of the iceberg in regards to buying, selling, and trading bitcoin and other digital currencies. Subscribe to the Bitcoin Market Journal newsletter to receive weekly updates and learn more about this fascinating industry.