Some personal pros and cons of using L2:
Pros:
Over the years I got a good feel for reading order flow by looking at a chart, then watching order flow at certain levels or times of the day (around news). You eventually can pick up a feeling of whether the market is strong or weak (sale of 1k shares - market doesn't move, buy of 500 shares, market moves etc).
It is useful when working orders, usually HFT will play games with you, especially when trading smaller cap stocks, but you can also learn to play games vs HFT. Also, you get a good feeling of a markets strength with how it reacts to your orders. Drop in some decent size to start, does it move? If so, does it recover quickly? Or does it show some continuation?
Cons:
Can be overwhelming at first, with algos dominant in most markets, prices move quite rapidly, bids/offers are constantly pulled/swept/refreshed and it's hard to tell how much volume is genuinely resting on the b/o at times. In a sense then, volume charts (footprint or cum delta) can be just as useful in chart format.
Sometimes you see larger sizes stacked on the Offer, so you may think Sellers are in control - yet price keeps rising. Sometimes markets will in fact move towards size in order to test liquidity, this can be confusing and counter-intuitive for someone new.
Finally, when looking at order flow of 1 market, you are seeing a snippet of info, especially in FX. Most FX is traded OTC so you won't see that volume. The volume traded on futs @ CME will be a tiny % of global volume. Also - you have to consider volume in spot, forwards, swaps etc...it's just too much info that will affect your product. This includes almost all other prods, for example, with something like Crude Oil - what are you looking at? Just the current front month? That is only 1 contract, what about the spreads being traded by hedgers/producers/merchants/specs? These can go out several years and are probably much more important to market structure than the prompt.
Anyway - quite a bit of info there but hope it helps. FWIW I would only ever use the DOM/L2 when trying to work an order.
