Market Depth Explained
Market depth shows the liquidity sitting above and below the current price. If you’ve ever wondered why price rockets through five levels one minute and then crawls the next, the DOM is your answer. It shows where liquidity is thick, where it’s thin, and where price is most likely to move next.
What Market Depth Actually Shows
Market depth shows the number of resting limit orders at different price levels. It’s a snapshot of who’s waiting to buy and who’s waiting to sell.
- Bids show buyers waiting below price
- Asks show sellers waiting above price
- Size shows the amount of liquidity at each level
This ties directly into your understanding of liquidity providers, since they supply most of these resting orders.
How to Read the DOM (Without Making It Complicated)
The DOM isn’t mystical. Price moves where liquidity is weakest. That’s it. Watch for:
- thin areas — price moves fast through these zones
- stacked liquidity — price stalls or bounces
- fake liquidity — orders that appear and disappear quickly
DOM Clues That Matter
Most DOM noise is irrelevant. Focus on the stuff that actually signals price intent:
| DOM Signal | Meaning |
|---|---|
| Pulling Liquidity | Market is preparing for a fast move |
| Adding Liquidity | Expect slowing or absorption |
| Liquidity Walls | Potential reversal or stall point |
| Air Pockets | No depth → price rips through quickly |
How Depth Influences Price Movement
Price doesn’t move because of candles. It moves when aggressive orders run into weak liquidity. Combine this with market imbalance and you’ll stop being surprised by sudden spikes.
Bottom Line
The DOM isn’t a prediction tool. It’s a map of where liquidity is hiding. If you know how to read it, you understand where price is likely to move smoothly and where it's likely to get stuck.