I noticed the phenomenon about two years ago when I was more actively day trading. I started with a small amount, just to get a feel of how the whole thing worked, and I found it so enjoyable that a threw in some good chunk of money and actually had some success with it.
In the way of my success, though, where these gigantic walls in the order book. Now, I can understand why these walls are there. They are a form of manipulation. They are placed sometimes by whales that wan't to control trading, or sometimes by the exchange themselves to provide stability of the price by reducing volatility.
When the price started to move, however, due to market-moving news, or high volume, I noticed these walls would glide along with the price. They never got hit. Someone, or more likely something was moving them. The fact that they were moving wasn't what was unusual to me, it was the speed at which they were moving. It reminded me of some feedback loop circuits I built way back during university days.
I figured out that, yes, that was what they were - a feedback looped algorithm that took inputs from various sources, including the current and average price, volume, etc.. and cancelled and placed orders appropriately. What's more, this entity had a firehose access to the platform so could operate at lightning speed compared to, say, a retail trader like myself on my laptop. Furthermore, the entity need not actually do any trading, but rather just provide apparent liquidity in the order book purely to feed human psychology. Pure manipulation, pure and simple.
Another thing I noticed was the presence of tiny trades, usually for the minimum dollar value allowed, at tiny increments (or decrements) from the current price to a price where a larger order was seating. In that case, if someone happened to fat-finger a market order, it could create a giant slippage in the price and cause the order to be executed at a much higher/lower average than expected, thereby benefitting the market maker.
Apart from all the other dangers lurking around the corner for traders, algos and bots also ensure that human traders, especially retail traders sitting in a cafe with their iPhone, are unable to compete, especially during sudden incidents. Many an amateur has been much rekt this way.
In my opinion, unless one is a professional trader, or one has access to a good bot that can play in the AI arena, one is better sticking with good old dollar cost averaging and taking profits during a massive bull run, including having a mid to long-term outlook to investment. Also, one better not invest more than one is willing to lose because, as we've seen very recently on multiple occasions, even carefully invested funds in the wrong place, can very quickly go to zero.
Peace & Love,
Adé
