Trading glossary
Order book
By the PatternX team · Published
Definition
An order book is the live list of buy orders (bids) and sell orders (asks) waiting at each price level for an instrument, with the quantity at each level. It shows how much size is ready to trade near the current price.
Also called: depth of market
How it works
The book has two sides. The highest bid and the lowest ask form the quote, and the gap between them is the bid-ask spread. Behind them sit more orders at progressively worse prices. A large market order "walks the book", filling level by level until it is complete, which is how big orders move price. Trading screens often show the book as a depth of market (DOM) ladder; how many levels you see depends on the venue and your data subscription.
How imbalance is measured
A common summary compares the size on each side over the top few levels:
Imbalance = (bid size − ask size) ÷ (bid size + ask size)
It runs from −1 (only sellers showing) to +1 (only buyers showing).
Why it matters
Depth tells you how much you can trade before moving the price, which drives slippage. A lopsided book can hint at short-term pressure. But the book only shows intentions: displayed orders can be cancelled before you reach them, some large orders are hidden, and some participants place orders they intend to cancel.
Example
For example, a hypothetical crypto pair shows 40 BTC bid across the top five levels and 10 BTC offered. Imbalance = (40 − 10) ÷ (40 + 10) = +0.6, a buyer-heavy book. For someone planning a short, that displayed size is leaning against the trade, at least on screen.
Common mistakes
- Treating displayed size as committed.
- Reading imbalance on a thin book where one order dominates.
- Forgetting that the book can change many times a second.
How PatternX uses it
Every chart-pattern signal passes a universal filter: order-book imbalance against the trade must not be worse than −0.5. Imbalance also counts toward the PatternX Score with a weight of .06. The PatternX AI context layer does not use the order book. Pattern backtests run with a neutral market context, so the order-book filter is effectively off in them. For the other measures that sit alongside depth, see liquidity.