Level II Trading

[Option Trader]

A stock like Microsoft? Agreed.
Trade size of only 300? Agreed.

 

[fhl]

Quote from SteveD:

It is my understanding that "retail" trades are a single digit per centage of the trading activity of the markets.

I really don't understand how a MM/trader that has an order to buy 500,000 shares of MSFT really has the time or inclination to waste with a guy from Elite Trader who has 300 shares of MSFT.

I have always believed that "small/retail/day traders are a "legend in their own mind" as to their importance in the overall volume of the daily market

SteveD

The answer is that the trader with the 500,000 share order will not continue receiving orders unless he executes well. If he telegraphs his intentions on L2, he will not execute well. This is what leads to the games between mm's and daytraders.

 

[cashmoney69]

Quote from fhl:

The answer is that the trader with the 500,000 share order will not continue receiving orders unless he executes well. If he telegraphs his intentions on L2, he will not execute well. This is what leads to the games between mm's and daytraders.

Msft's average volume is over 91,000,000 shares! ...why would an MM have a problem buying or selling 500,000?. I'm not a day trader so Im curious...

- nathan

 

[fhl]

Quote from cashmoney69:

Msft's average volume is over 91,000,000 shares! ...why would an MM have a problem buying or selling 500,000?. I'm not a day trader so Im curious...

- nathan

Didn't say it was a problem to buy or sell shares. I said if they telegraph it by sitting on or riding a large bid while they are buying, they will probably have a worse execution for their customer or themselves than if they play the games with the ecn's, etc. If a daytrader can correctly determine when a mm has an order and can profit from it, he has in a sense frontrun the mm's order and caused the mm to pay a higher price than he otherwise would have. I mean does a mm add any worth to the equation, or is he just there to go in the market and buy half a million shares for his customer.(at any price). They get paid to perform. Perform means getting the best price.

 

[cashmoney69]

Who are these "customers" you speak of?.. I would guess they're not average people like you and I...so who are they?..bill gates? ..lol

- nathan

 

[fhl]

Quote from cashmoney69:

Who are these "customers" you speak of?.. I would guess they're not average people like you and I...so who are they?..bill gates? ..lol

- nathan

Institutional...fund groups, money managers, etc. When they place an order with a broker, they are a customer.

 

[Triple X]

Anyone know how pipeline or liquidtrade figure into this? My understanding is that they are both institutional markets; are they somehow displayed on level 2, or are those trades even in t&s?

 

[gkadir]

Thank you traders for your kind input in this subject, I hope other traders can benefit from this.

What I am doing now on my entries say for example I want to go short, and see a lot of market makers on the bid, and the price is say 50.60, when the price gets there the market makers pull thier bids, and price goes to 50.59, I go short. I take that has a confirmation of my judgement that the stock is headed down. I have found this to work most of the time. Sometimes prices goes down and then jumps back up. I also confirm on the times and sales screen that market makers bids havn't been transacted.

But I think there is more skill needed to really identify who are real buyers and sellers, or if the market maker is playing games.
Also identifying the AX is another skill as it changed from hour to hour it seems.

Any thoughts and contribution will be greatly apprecaited by experienced traders.

Thx

 

[WmWaster]

Quote from gkadir:

Hello Fellow traders,

I wanted to ask your experiences in using Level 2 for trading stocks. I am trying to use it to reduce the risk at my entries, but I have find it very misleading sometimes.

We know that when there are a lot of Bids the price is likely to go up and if there is more orders on the offer the price is likely to go down.
I recorded the level 2 screen from my desktop. I found to my surprise on many ocasions that when at critical support or resistence level, despite there being more orders on the bid, the price goes down vice versa when the price is at major resistence.

Its like if there is more orders on the bid the price goes down. If there's more orders on the offer the price goes up.

In my viewpoint, it seems there's no definite relationship between large bid/ask and the direction.

Sometimes it moves against. Sometimes it moves toward.

Some daytraders can trade only by Time & Sales + Level I Quote. They ignore Level II quotes as they find out that they are here to confuse more than to help.

Some daytraders make use of Level II quotes to trade too, in addition to Time & Sales + Level I Quote.

I am really confused. Can anyone enlighten me with thier experiences why this is, and how and where I can learn to read the level 2 order book more effectivly.

Thank you in advance for your time.

Sorry, but it seems there's no (good?) level 2 order book.

It seems we have to learn it all by ourselves.

Also I find it hard to learn and practice. While we can read as many charts as possible, information/records about Level II quotes are very limited.

If you find it is so hard to get this edge, the best advice is to abandon this edge since there're always other edges available for you to pick.