What is the strategy behind a sell wall?

I understand the idea behind 'bid walls', but on Kraken, prices are being kept low through the use of 'sell walls'. The volume on this exchange is too low to have a chance of getting through these walls, even when prices on other exchanges are skyrocketing. Every so often, when the price falls a bit, up comes a new 'buy wall' keeping it there. The price on Kraken falls when other markets fall, but gets stopped at the wall on the way back up. I am curious to know what the strategy behind this tactic could be.

enter image description here

Added 21 Nov for elucidation

On this small volume exchange, a 30 BTC ask equals 10% of the 24hr. volume. It is the equivalent of a 4500 BTC ask on Bitstamp. It alters the way bidders approach the market. When you see such a wall sitting just above the current price, you can be sure the price will not be rising beyond it for at least the next few hours.

I watched this person re-position this block four times over the course of the day. Each time, lowering it to sit just above the current bid price. It was altering the dynamics of this small volume exchange.

I am not asking for you to read anyone’s mind. I was baffled by this behavior. I had not seen this strategy before. I thought that there must be some method to this madness, but I could not see what I might be. I thought that somewhere in the collective experiences of Stack Exchange there might be someone who was familiar with this strategy and might be able to provide some insight, not necessarily on this person’s behavior, but on the theory behind the strategy being employed. Assuming, of course, that there is one.

James Sheils

Posted 2013-11-19T20:56:25.020

Reputation: 396

I think you're missing something fundamental here. These walls don't come from the exchange or from an individual person or source, they're the cumulative result of the actions of everyone trading (speculating) on that exchange. There's no one strategy that leads to or explains bid and ask walls. You're thinking micro when the problem is macro. – David Perry – 2013-11-19T22:26:28.700

1Thank you for taking the time to write a reply, but you seem to have missed the point entirely. I am not asking about the origin of the wall. I am asking if there is a known strategy that involves keeping the price from climbing by placing an ask order at more than 60 times the mean trade volume at the just above current bid price. Such a disproportionate ask order that suddenly appears, then vanishes and reappears moments later at a new price is not the work of spontaneous generation or the natural result of cumulative actions as you seem to be suggesting. – James Sheils – 2013-11-20T08:25:16.807

@DavidPerry: It could be the work of an individual person: a single large investor who decides, for whatever reason, that she wants to unload a bunch of coins all at once. If she changes her mind a few times about what price she wants, you'll see the wall move around. I don't see why this should suggest that she's trying to affect the larger market in some way; she might just want to make a big trade. But there could be something I'm missing. – Nate Eldredge – 2013-11-20T14:22:00.987

1@NateEldredge: True, but it still remains that at worst this question misunderstands fundamental concepts and at best it's asking us to be mind-readers. – David Perry – 2013-11-20T19:20:30.407

– Murch – 2013-11-21T10:04:07.410

Further investigation leads me to believe that this wall could have been providing insurance to support a short position. A risky strategy, but do-able considering the unique opportunities possible due to the dynamics of this low-volume exchange. Of course, since the volume is so low the ROI would also be pretty low. Thanks for your help. – James Sheils – 2013-11-21T10:07:01.457

Answers

A large investor might be trying to move the market.

Sell walls create an impression of a strong supply. This makes some people, unwilling to wait for the wall to break down, pitch their sales offers below the wall. By moving the wall closer to the current bid again, a large investor might be able to move the market to a small extent and then buy at a lower price. The investor's goal is to move the market, not to actually sell his supply at that price, so when the price gets too close, such walls often disappear or move to a higher price. Especially, if you see the same amount popping up at different prices, there is probably someone trying to move the market without actually fulfilling orders or bids.

Another type of sell wall is composed of many combined sales offers at certain landmark prices, e.g. $600. These usually don't move around.

Murch

Posted 2013-11-19T20:56:25.020

Reputation: 41 609

4+1 good explanation. Someone should mention that suddenly appearing large (1 million USD or more) walls, both on the bid and sell side, have been observed time and again at least since 2011 on MtGox. I guess the sudden appearance and disappearance of > 1000 Bitcoin orders suggests that either single investors are responsible, or fast-acting robotic traders. The later explanation is the somewhat less likely one, because it would probably make more sense for such robots to try front-running by choosing a slightly lower price. – pyramids – 2013-11-21T15:15:24.163

I use this type of trading to accumulate buys at a cheaper price. Ex: if I spend 2 hours buying small amounts of coins so nobody notices the large buys, then I put up a large sell wall ($30k-$45k) to encourage sells. After that pushes down the market from panic sellers trying to under sell my wall, I instantly buy those sells up and remove my wall and then put in a buy order for enough tokens to raise it 3%-7%. That gets traders attention and I let them take the rest over and pump the price 10%-15% more. Then I drop my accumulated coins on them. Usually, I buy up the orders down to my original 3%-7% I purchased to build the trade tension and that gets written off as me just paying trading fees and the rest of the coins are all profit. This is 1 reason you may see some decent sell walls on random coins that are used just to push the price down.

StiltSkin

Posted 2013-11-19T20:56:25.020

Reputation: 81

http://www.dancingbots.com [1] is visualizing the chronological sequence of limit orders on popular exchanges. You can see how those walls are repositioned if the price moves.

Those big positions are an exception. More often those walls consists out of multiple positions spread over a price range. They show up as parallel horizontal lines. If you look at a the usual orderbook graph those spread out positions give an impression of an authentic orderbook imbalance.

Another variation are lots of smaller positions which are canceled after a few seconds reopened gain at a similar price level. I guess they also try to give the impression of a oderbook imbalance, but at the same time try to pretend that the slope is getting steeper. Maybe they try to trigger buy decisions of other bots.

[1] I am the creator of dancingbots.com.

tobltobs

Posted 2013-11-19T20:56:25.020

Reputation: 151

1I understand both lines and dots represent limit orders. Are dots those limit orders that get posted and then get removed quickly? And the lines are those limit orders which stay persistent for as long as the length of the line? – Tanmay – 2018-01-16T07:45:46.733

Amazing website! Is there any chance you are open sourcing it? Cause I would love to look at the code. – Raunak Thomas – 2018-01-22T05:21:50.390

1@Tanmay Yes, your understanding is correct. But a line doesn't necessary represent a single limit order. It shows the summarized amout of limit orders at this price. Those lines at round numbers are usually the result of many smaller limit orders. Hint: Don't use round numbers like 500 for your limit orders, subtract or add a penny (eg 499.99 for a sell order) to ensure your limit order will be executed. – tobltobs – 2018-01-23T07:43:36.277

The point of sell walls is to encourage people who are in need or urge to sell their coins at a lower price,thus keeping or moving the market in the direction needed by the owner or owners of the stack. Hope that makes sense.

Joy

Posted 2013-11-19T20:56:25.020

Reputation: 11

Sell walls are whales trying to suppress the price of a currency, usually in order to buy up more of it themselves.

Crnaruza

Posted 2013-11-19T20:56:25.020

Reputation: 1

I thought they existed because without them you could simply leave a trail of 0.001 btc or something all the way up the prices to much higher price in an order book without spending much money. The value shoudl be the market cap / coins distributed. If there is not that much in the currency then it can't achieve that price level there needs to be enough money invested to meet the market cap required for that level of price.. But that was only what made sense to me when analysing the same situation on exchanges. I could be wrong.

Paul

Posted 2013-11-19T20:56:25.020

Reputation: 1