Quote from andread:
I have a question though. You talk about pikers and real buyers. Isn't it in the real buyer's interest to show himself as a piker? People are paid to buy and sell in the quietest way possible. I actually read that big bids and offers are often made just to lure people
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Big bids and offers really are there to lure people in, but that can provide valuable information. What if it comes out mid-day that a company raised their earnings forecast, and you see giant bids come in on the level II which repeatedly get sold into and come back? What if the buyer showing the bids has already proven beyond any reasonable doubt that he has an intent to buy and that owning the stock at that given point is an extremely high probability trade? Figuring out how the buyer is disguising himself as a piker - I can go over specifical trades if you would like - provides extremely profitable information. Does he keep coming back with 700 share bids and step them up?
Just because people play games with the open book and level II doesn't mean they're not worth looking at. Seeing how someone is working an order, and when the order is no longer being worked the same way or having the same effect on price, is extremely important. Maybe a stock is up 3 dollars because of a guy who brings in 5000 share bids on Island and then waits until they get filled and then brings them back at the same price level until he gets filled, until he finds the price is trading too high so he starts stepping the bids up and repeats the process for 3 points. What if now, when that bid gets brought in, it immediately gets taken out - several times in the row, whereas before, when a bid would come in, everyone would take all the offers in front of that bid and drive the stock up 25 cents? What if, for the last 3 points, the bid would come in at a higher price or, if taken out, at the same price, and now the bid is starting to come in lower? I.E. before, he would bid 25.25, come in, get taken out, and come back at 25.25, then get filled, and then start coming in at 25.40... now he's coming in at 28.10, 28.10, and now 28.00, 27.90... Something is changing. Trading is about detecting change. At this point, the sellers are starting to have more control.
What if we see a big print on the offer on a plus tick for 55,000 shares, if before the biggest prints were the 5000 share prints going off on the bid and one 12000 share print at a big offer? What if, now, for the first time, the 5000 share Island bids stop coming in? Can you seriously argue with me that this is not a good time to be short stock, or that having access to the Level II does not help you in this situation? Fake size isn't an issue because throughout the trade the bids proved they were real. If suddenly the bids come in on Island for 5000 shares and then start pulling - something they never did before, I will just see that they're full of shit. If I see them pull sometimes but sometimes get filled, I'll know that asshole market makers/floor brokers/specialists/institutions/daytraders/whomever are playing games and that I should move onto another stock. No matter what happens, I learn information I couldn't otherwise have. Generally, though, that large print will signal to me that the buyer is done - especially if the orders on Island stop coming back. If after that print, the buyer starts bringing his bids back at higher levels and is able to drive the price up forcefully again, then I'll know that the seller is done and the stock is a buy. Either way, to assert that the information I attanied through the Level II in the aforementioned situation can't be used is absurd.
I just made the above scenario up. I see situations like that all the time, where a huge amount of information shows me that the price will go in one way - it's a sort of logic. Because no matter how much I tell anyone what filters I use, why I entered and exited every single trade, and even why I avoided taking certain trades... they still won't have my judgement. For me, every trade is a unique story, and the more I've seen it in the past and the more I think I know what is going on, the more convinced I am that waht I think I see is actually happening. So I can tell someone all that I know, such that he spends less time on the path to developing poor judgement... but taking anything of use from me and using it to compete for my fills is not something that concerns me.
[ The TicCollector ]