What Is a Sell Wall?
In crypto, sell walls are sharp rises in potential selling volume caused by a large volume of limit orders to sell the asset at higher nearby prices.
This causes rising prices to slow down and even revert if the selling volume exceeds the buying volume greatly. In trading psychology, large sell walls can influence holders to sell earlier and deter new investors from buying.
In-depth chart analysis, sell walls can be measured using the total number of tokens (vertical axis) and price (horizontal axis).
In the right example above, almost 75 Bitcoins are ready to be sold automatically for around $100,630. Any buy order lower than this will not be able to move the price up in the short term.
Both buy and sell walls represent a high volume of cancellable limit orders, usually from a few large investors (or whales).
Difference Between Sell Wall and Resistance
Buy and sell walls are often used interchangeably with the support and resistance levels (price ranges that limit how low or high assets can go short term). However, there are minor differences:
- Sell walls measure volume, not prices, which allows to map out potential resistances, not the other way around
- Sell walls can be intentionally created by traders and don’t always match the resistance. Resistance levels are prices already tested that led to a natural decrease (such as triggering orders from 500+ smaller traders rather than 5 whales)
In practice, however, both often look the same.
Sell Wall Meaning and Market Impact
One may think that sell walls are a bearish sign. However, because the orders are cancellable and influence other traders, they are more of a tool than an indicator.
Sell walls can temporarily lead to lower prices.
Simply put, when large holders want to keep buying at lower prices, they create sell walls to prevent prices from increasing. The same can work for short trading (selling high and buying low with borrowed crypto).
This is because sellers can’t sell at prices higher than the sell wall, having to either wait or sell below it. Buyers don’t want to risk losing money by buying next to the wall, which reduces demand. Once prices do fall, whales may start buying and removing the sell walls.
Thus, the “sell wall trading trap” can be a bullish sign.
Conclusion
With sell walls, traders can determine how many tokens are ready to be sold in case of a price rise. This method can be more reliable than buying walls, given that the traders already hold the asset.
In practice, most sell walls aren’t triggered nor aren’t intended to. For altcoins with lower market capitalization, large holders can create walls on both sides to misrepresent the short-term price potential.
To identify reliable support and resistance levels, it’s worth also looking into indicators like the RSI and MACD.
