Level II

S

swifttrader1

Anyone know of a good book that explains about how to understand and what to watch for on level II screen. It seems to me that alot of traders I talked to know who's doing what at what price. I still have a hard time figuring it out.

Thanks for any help.
:D
 
I think it is very difficult to tell who is doing what from just looking at a Level II screen. When looking at the bid/offer volume, there is no way to get an accurate picture of what is going on because you don't know how many of those orders are legitimate and how many or going to be canceled. My reason for trading on a Level II screen is simply because I feel it is faster for me. It is easier to place and manage orders and cancel/replace them.
 
Quote from swifttrader1:

Anyone know of a good book that explains about how to understand and what to watch for on level II screen. It seems to me that alot of traders I talked to know who's doing what at what price. I still have a hard time figuring it out.

Thanks for any help.
:D
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Level II's are best if you are trading NYSE. You actually see more of who is doing what. For instance, MER downgrades MO. Once it goes down 50 cents, you can see them on the bid filling their orders. Or say MER upgrades X which is trading at $74.00 to $85.00 price target. You can find them on the offer when the stock hits $76.00 that day.

Seriously though, what you want to look for is when a stock is stuck at a price when it was moving up earlier. Is the offer continuously refreshing to show 2500 shares? It could mean that a fund is dumping all their shares, and if you buy at that spot you'll have to wait all day before it breaks through, or it won't at all. You may want to short this spot right in front of their price if you are bearish and trying to think of where to execute. Just a couple examples.

I don't know of any books personally though. I don't really think there is any way to fully explain level II's. With time, you will just start to see what is going on. It isn't like technical analysis where you look for indicators to line up a certain way. It will help you improve price execution though when you start to understand it better.
 
Quote from swifttrader1:

I usually trade INTC MSFT TXN XOM ADCT SUNW
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Well, I´ve traded SUNW and XOM before. On SUNW what you want to look for in that stock is the range of movement and how much is the tape printing in each direction.
Once you got an idea of that, see how long the line is on each side {bid/ask} and place your order first on the side that would most likely take the longest time to fill you, basically the idea is to go in/out with just a few seconds difference to minimize market exposure.
Sometimes however, it wont give you a fill until the stock has moved and you´re -0.01 in that case, what you´re looking for is for the stock to move back your cent {taking you out}. Sometimes SUNW does that several times in a row making it quite easy to make a profit from credits.

That works while the stock is ranging... once it goes out of the range is a totally different story.

On XOM, you want to look for a key question, on which side is everyone more easily scared and propense to cancel their orders? In fast markets the stock usually moves because everyone is cancelling on one side while everyone is throwing themselves on prices on the other side. Also, when there´s a spread try to see which side is more eager to fill that spread.



Couple of questions, what king of volume are you trading on those stocks? Are you scalping them or trading in longer time frames?
 
I usually trade 1500 to 5k shares but I still find it dificult to figure out, I was thinking about what you wrote and you mentioned about placing order where it would take the longest to get filled. Wouldn't it be better to try and get first in line so that I can punch out at even instead of risking losing 1cent, when the stoclk runs through me? Maybe I didn't understand really what you meant and I sure don't mean to undermind either. Just trying to understand it better.

Thanks
 
When you trade XOM do you also look at other symbols to judge where it might go. I hear XLE is a good indicator for that but I was wondering if there is a better one.
 
what I meant is. If you place one order on each side, like credit traders tend to do. place your first order on the side that has the longest line, and your second order a few minutes later on the other side, so that both orders can reach the market around the same time. It´s a lot easier to do this if you have the INET book viewer.
 
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