What is Order book
An order book is a log of the buy and sell orders of an asset. Order books are employed by exchanges and are arranged to showcase the highest bid and lowest ask prices at the top of the list.
Along with the trading prices, other information and diagrams can be found in an order book. For example, you can often find candlestick charts which help visualize the changes in price between opening and closing prices of an asset and indicate the highest and lowest price points reached within a certain interval of time.
Moreover, the sizes of the placed buy and sell orders are also indicated in the order book. This could provide traders with insights about potential resistance or support price levels, and as a result, insights about the direction that price is heading towards.
For instance, when the asset price decreases to a support price, it prompts more buyers to purchase the asset at the lower price. Consequently, drawing in a larger number of buyers than sellers, the price jumps back up again. Therefore, by comparing the number of sell and buy orders of an asset, identifying potential imbalances, and observing the price levels, a trader can have an idea about a possible emerging trend. These signs are not stand-alone indicators but are to be used with other information within the context of technical analysis.