Depth Chart Interpretation

A depth chart is a visual representation of the cumulative volume of buy and sell orders at different price levels. Interpreting this chart allows traders to quickly assess the market's support and resistance levels.

The buy side, or bids, is typically shown in green, while the sell side, or asks, is shown in red. A steep cliff on the chart indicates a significant concentration of orders at a specific price, which may act as a barrier to further price movement.

By analyzing the symmetry and shape of the chart, traders can infer the prevailing market sentiment. However, depth charts can be misleading, as orders can be canceled instantly, a phenomenon known as spoofing.

It is a tool for quick visual analysis rather than definitive proof of future movement. Combining depth chart data with other metrics provides a more complete view of market conditions.