Sell walls refer to a significantly large sell order or orders on the order books of an exchange. Other traders can see these sell walls on the books and are often incentivized to sell first, and high-net worth individuals like “crypto whales” can manipulate prices by creating sell walls.
Sell walls essentially indicate that someone, typically a whale, is willing to sell massive units of a coin or crypto-asse. This translates to a huge asset supply and may cause inexperienced traders to make a panic sale at prices slightly below the wall. Although the seller’s intent will remain unclear, price manipulation remains its most common use.
Typically, the sell order is so huge that asset prices can not go beyond a set price level in the market.
Initial response to the wall
Given the relatively fickle nature of the cryptocurrency markets, day traders and inexperienced traders are more likely to swing into action by selling their positions, usually out of fear.
Should I be afraid?
This depends on whether you are invested short-term or long-term. Sell walls are insignificant in the long term as they rock the stability of the market temporarily. However, monitoring the impact of a sell wall by simply comparing the sell order vs. the daily trading volume may prove instrumental in your reaction to the wall.
In the short term, day traders and single traders who actively scalp the market are at risk of falling victim to the gimmicks of a whale. The most common method of identifying a genuine sale is the length of the sell order. Typically, a sell order that has remained on the order book for a week may indicate that the seller may indeed want to exchange his coins for other cryptocurrencies (such as Bitcoin) or fiat currency.