Understand the depth of market charts and order books

NinjaTrader’s Depth of Market chart is one of the easiest interfaces to view order book data. Although not often used in futures trading, the depth chart is considered by cryptocurrency traders to be a mainstay in determining market sentiment. The depth chart is available to monitor both cryptocurrencies and futures. As Micro Bitcoin Futures grows in popularity, futures and cryptocurrency traders can benefit from this tool.

What is a market depth chart?

In trading, market depth refers to the ability of a market to sustain large orders without significantly affecting price. Market depth is usually assessed by looking at a security’s order book. Order books are a list of pending orders to buy or sell at different price levels.

Market depth charts display bid (buy) and ask (sell) data for a particular asset at different prices. This supply and demand visualization turns order book data into a quick and easy to read chart.

While traditional order book interfaces like the T&S window and SuperDOM have their own unique characteristics, the depth chart is a fresh take on the old question, “What will the markets do next?”

Although not often used in futures trading, the depth chart is considered by cryptocurrency traders to be a mainstay in determining market sentiment.

Use the + and – buttons to zoom in and zoom out the price scale. Hover over pricing tiers for details on volume and book value.

  • Green side = lowest purchase price
  • Red side = highest selling price

Depth Table Anatomy

The interface has three main sections: Quotes, Chart, and Tooltip.

  • Quotation: the Quotes section displays various market data items at the top of the window. Here you will find dynamic values ​​such as bid, ask and last price, as well as session open, high, low and volume values. Optionally, the Dimensions section can be disabled by right-clicking on the depth chart and deselecting “Show Dimensions”.
  • Chart: the graph is the main screen of the depth map. It shows the cumulative buy and sell orders across the entire available book, so the vertical value at any time is the result of adding all active orders in the order book to the value of the price on the horizontal axis. You can use the + and – buttons at the top of the chart to set the zoom level, zoom out to more immediate prices, or zoom out to see a bigger picture.
  • Tooltip: the tooltip displays the price level under the cursor, along with the value of the associated cumulative order volume and the cost in coins of this cumulative order volume. This can be very helpful in understanding the market share that is occurring in the markets you are looking at. Take a look at the cash value of the early market depth levels of the E-Mini S&P 500 (ES) during market hours to see for yourself!

Use the + and – buttons to zoom in and zoom out the price scale. Hover over pricing tiers for details on volume and book value.

How to read a market depth chart

Everything we’ve covered so far could probably be done using another interface. So the burning question remains: why use the depth chart? Similar to historical data charts such as the candlestick chart, viewing order book data in a more visual way can help traders identify patterns and plan accordingly.

The wall

One of the features of the depth chart is the “wall”. Walls can form on the buy or sell side of the chart and indicate price levels where the cumulative value of supply or demand is rising sharply. You can’t see this data on a standard price chart, but by looking at the depth chart, you can get an idea of ​​how other market participants are reacting to changing conditions. Walls formed throughout the trading session can then form support or resistance on the price chart.

Below are some examples of different markets on the depth chart. There are multiple walls formed in each graph.

buy walls

Buy walls represent a large number of buy orders, usually placed below the current price level. A higher buy wall means there are more pending buy orders at a given price. High buy walls can also indicate that traders believe an asset will not fall below a certain price.

sell walls

Conversely, sell walls represent a large number of sell orders set above the current price. High sell walls may indicate that traders do not believe an asset will break above a certain price, while low sell walls indicate the opposite.

Setup: Market Sentiment and Trend Exhaustion

As you probably noticed in the example above, the depth chart can look unbalanced on both the buy and sell side. This can be an indication of a more bullish market sentiment if the buy side is higher, or a more bearish sentiment if the sell side is higher. Sometimes a price chart and a depth chart may not match. For example, the price chart may look bullish, but there is a large accumulation of accounting data on the sell side of the depth chart. This could mean that the uptrend is coming to an end.

Add a depth chart to your workspace

You can access NinjaTrader’s depth chart window from the “New” menu at the top of the Control Center. Select “Depth Chart”, then add your favorite cryptocurrency and futures instruments to watch.

Once a new window is opened, there are several ways to select an instrument in the depth chart window. Right click in the depth chart window and select “Instruments”, or just start typing the instrument symbol directly on the keyboard.

Using the depth chart in conjunction with candlestick charts and other tools in NinjaTrader can help you learn to identify patterns in the markets you are trading and inform and confirm trading decisions. Check the depth chart today and get a quick overview of the order book!

Getting started with NinjaTrader

NinjaTrader supports over 500,000 traders worldwide with a powerful, easy-to-use trading platform, discounted futures brokerage, and world-class support. NinjaTrader is always free to use for advanced charting and strategic backtesting via an immersive trading simulator.

Download NinjaTrader’s award-winning trading platform and get started today with a free trading demo with real-time market data.

Leave a Comment