A number of threads at this site have indicated that the use of level II and time and sales are no longer viable trade entry indicators, is this the case and if not are there traders out there who are using these tools profitably. I have used a simulator and it appears to me that even in very high volume stocks strength and weakness can still be seen (for sure) and traded (on a simulator yes, don't know in the real world) I would be grateful for your real world experience
Level II and T&S
- Thread starter willsoph
- Start date
I trade NAZ exclusively these days, I don't even have L2 feed. It's totally useless. Just get yourself a 5min chart, and trade in the same direction of daily/hourly trend. (I trade the most active names like HGSI BRCD VRTS etc).
I guess on thinly traded slow moving stocks, L2 might offer some clue of supply/demand, then that is not my game anyway.
I guess on thinly traded slow moving stocks, L2 might offer some clue of supply/demand, then that is not my game anyway.
I agree, with all the mm games and head fakes I don't understand why people use LII? then again maybe I'm missing something.
The way I figure is, when people take a position, then it matters. All the posturing is distracting for me and I ignore it totally by not having LII on purpose.
I look at TS and charts.
The way I figure is, when people take a position, then it matters. All the posturing is distracting for me and I ignore it totally by not having LII on purpose.
I look at TS and charts.
Magna
Administrator
I also rarely look at L2, particularly on fast-moving liquid stocks (as it's a total blur). Too many false setups, head-fakes, and traps with mm's using INCA (and other ECN's) to disguise their buying and selling.
Do, however, use T&S extensively, like to see the size and rhythm of the prints, whether they were at the bid or ask, etc.
Read someone who said T&S is reality, charts are reality, L2 is illusion. I agree.
Do, however, use T&S extensively, like to see the size and rhythm of the prints, whether they were at the bid or ask, etc.
Read someone who said T&S is reality, charts are reality, L2 is illusion. I agree.
I don't trade liquid names. I find l2 invaluable. IF you don't have l2, you're really missing something. There is no other way to see who's doin what, and no other way to make money. In the liquid names, I guess it doesn't matter, but let someone who trades those try and explain it. On the NYSE, you can't live without l2 and t/s especially.
Baron
ET Founder
If you are an intraday trader, then L2 is extremely important for identifying pockets of liquidity, which is crucial for order-execution purposes. If your time frame is longer, then the value of level II decreases, as it is primarily a tool used in an ultra short-term time frame.
Although I'll be the first to admit that L2 can be misleading at times, the other indicators are not much better. The saying that charts and T&S are "reality" is extremely flawed, in my opinion. If they were reality, then there would not be terms like "erroneous prints" and "false breakouts". The fact is, you can base your medthodology strictly on charts and T&S, and still get manipulated and burned on a regular basis by other market participants.
Here's a good example. A stock is close to breaking out to the upside, and I have a huge order to sell, let's say a couple hundred thousand shares. I know that if this stock breaks out, everybody and their brother will be buying it. The stock seems to be hesitating a little bit, and I really need to dump these shares. The last thing I want it to do is to collapse before it breaks out, because it will be difficult for to sell at decent prices with everybody else trying to sell and the same time. So what do I do? I start buying the stock, but in small 500 and 1000 share lots, just enough to break the stock out to new highs. All the "reality" traders using charts and T&S see the breakout pattern form and the positive trades appear, and therefore start jumping in, so I start putting out stock to sell to every technical trader that wants some. By the time I've finished dumping my load of stock piece-by-piece, the stock has tanked well below the breakout point. The Result: All the reality traders lost their shirts and I completed my objective.
Opponents of Level II say there's too much noise for it to really be useful. Although somewhat exaggerated, this is a legitimate complaint. There is a lot of noise in the form of constantly refreshing bids and offers, but that's because it's a real-time display and not a historical indicator like a chart, so let's not act like we're comparing apples to apples here. You can change your chart from a 1 minute period to a five or 15 minute period to filter out the noise but there's no such adjustment for a level II display because its a completely different kind of tool. But that's fine in my book. If your strategy is one that only requires that you get an update on a stock's chart every 15 minutes, you don't really need L2 anyway, except for possibly improving the quality of your executions.
As I said in the beginning, L2 is useful and it has its place, but only for those whose time frames are short enough to make use of it.
Although I'll be the first to admit that L2 can be misleading at times, the other indicators are not much better. The saying that charts and T&S are "reality" is extremely flawed, in my opinion. If they were reality, then there would not be terms like "erroneous prints" and "false breakouts". The fact is, you can base your medthodology strictly on charts and T&S, and still get manipulated and burned on a regular basis by other market participants.
Here's a good example. A stock is close to breaking out to the upside, and I have a huge order to sell, let's say a couple hundred thousand shares. I know that if this stock breaks out, everybody and their brother will be buying it. The stock seems to be hesitating a little bit, and I really need to dump these shares. The last thing I want it to do is to collapse before it breaks out, because it will be difficult for to sell at decent prices with everybody else trying to sell and the same time. So what do I do? I start buying the stock, but in small 500 and 1000 share lots, just enough to break the stock out to new highs. All the "reality" traders using charts and T&S see the breakout pattern form and the positive trades appear, and therefore start jumping in, so I start putting out stock to sell to every technical trader that wants some. By the time I've finished dumping my load of stock piece-by-piece, the stock has tanked well below the breakout point. The Result: All the reality traders lost their shirts and I completed my objective.
Opponents of Level II say there's too much noise for it to really be useful. Although somewhat exaggerated, this is a legitimate complaint. There is a lot of noise in the form of constantly refreshing bids and offers, but that's because it's a real-time display and not a historical indicator like a chart, so let's not act like we're comparing apples to apples here. You can change your chart from a 1 minute period to a five or 15 minute period to filter out the noise but there's no such adjustment for a level II display because its a completely different kind of tool. But that's fine in my book. If your strategy is one that only requires that you get an update on a stock's chart every 15 minutes, you don't really need L2 anyway, except for possibly improving the quality of your executions.
As I said in the beginning, L2 is useful and it has its place, but only for those whose time frames are short enough to make use of it.
For the past couple months I've been trading LLTC & MXIM. I like trading the pair because each day one is stronger and one is weaker, but generally they trade in tandem.
Anyways, I couldn't trade these without L2. As I stated recently on another thread my scalping methods haven't worked in the low volume summer, but days like today I can do very well. These two stocks are just liquid enough to fill 1500-2500 shares, and when you are right it's easy to make .3-.5 on a scalp (perfect trading conditions). L2 allows me to see who the sellers/buyers are that day, and that information allows me to decide when and where to enter positions. For example if MXIM is weaker than LLTC I will try to figure out why. Maybe MLCO has been selling MXIM all day. Therefore I will only trade LLTC long and MXIM short on that day, unless MLCO leaves the MXIM offer for good. There are many variations to this strategy but people who completely avoid L2 are in the dark.
This is just one example of a trading strategy that utilizes L2.
I am sure there are successful traders scalping heavily based on L2, and I am talking about those making 100+ trades a day.
With any holding period longer than 5 minutes, L2 is useless, except that it may improve your execution. e.g. if you want to short into squeeze and there are tons of fake bids and only 1 non-refreshing MM sitting on the ask, you can place some offer outside by $0.1 to $0.25, and the paniking chippies will wack your offer.
I don't disagree with Baron that there are lots of false break outs. Same holds true for any edge a trader defines. any chart pattern has failures, that's why we play the game, the game of probability.
Again, as stated in lots of other threads, the technical aspect might only be 1% of the business, the other 99% is psychology and risk management.
With any holding period longer than 5 minutes, L2 is useless, except that it may improve your execution. e.g. if you want to short into squeeze and there are tons of fake bids and only 1 non-refreshing MM sitting on the ask, you can place some offer outside by $0.1 to $0.25, and the paniking chippies will wack your offer.
I don't disagree with Baron that there are lots of false break outs. Same holds true for any edge a trader defines. any chart pattern has failures, that's why we play the game, the game of probability.
Again, as stated in lots of other threads, the technical aspect might only be 1% of the business, the other 99% is psychology and risk management.
Willsoph,
Are L2 & TOS useful - is a word, YES
*Can you see when the last price is above/below the inside market? Yes
*Can you see the inside market adjust itself to meet the last price? Yes
*Can you see the direction in which the spread resolves itself in? Yes
*Can you see the immediate supply and demand picture for the inside market? Yes
*Can you see the exhaustion of buyer/sellers after an advance/decline? Yes
*Can you see how thick/thin the second (and sometimes third) inside market is, and if price wont/will travel? Yes
*Can you determine the rate of advance/decline with TOS? Yes
*Can you color code the Bids and Asks in TOS to determine support/resistance? I hope you can.
*Are there times when what you see it not real? Yes
Totally useless? No, not to me. I trade the NASDAQ market only using L2 & TOS with TA on tick charts for entries and exits. The above relationships <not all inclusive> are often at work, giving clues as to the market's direction.
L2 is a skill, like any skill it requires patience and understanding to interpret the nuances given off. It is possible to determine and advance or decline with L2 exclusively, moves of a dime to a quarter have been common. The timeframe in question will need to be very fast to harness what happens in the above relationships effectively.
The aforementioned represents my opinions and experience.
I hope this helps.
-Hoyler
Are L2 & TOS useful - is a word, YES
*Can you see when the last price is above/below the inside market? Yes
*Can you see the inside market adjust itself to meet the last price? Yes
*Can you see the direction in which the spread resolves itself in? Yes
*Can you see the immediate supply and demand picture for the inside market? Yes
*Can you see the exhaustion of buyer/sellers after an advance/decline? Yes
*Can you see how thick/thin the second (and sometimes third) inside market is, and if price wont/will travel? Yes
*Can you determine the rate of advance/decline with TOS? Yes
*Can you color code the Bids and Asks in TOS to determine support/resistance? I hope you can.
*Are there times when what you see it not real? Yes
Totally useless? No, not to me. I trade the NASDAQ market only using L2 & TOS with TA on tick charts for entries and exits. The above relationships <not all inclusive> are often at work, giving clues as to the market's direction.
L2 is a skill, like any skill it requires patience and understanding to interpret the nuances given off. It is possible to determine and advance or decline with L2 exclusively, moves of a dime to a quarter have been common. The timeframe in question will need to be very fast to harness what happens in the above relationships effectively.
The aforementioned represents my opinions and experience.
I hope this helps.
-Hoyler