Using Level 2 and T&S in day trading

[VinceField]

When you're looking at level 2 and time & sales before entering and/or during a trade, please tell me some things that you look for and how those things inform your trading decisions.

I'll give a few examples.

Large orders on the bid and ask can act as support and resistance level confirmation.
Something I learned from some traders and have seen myself to a limited extent (I'm new to trading) is that a big order sitting low on the ask can be a bullish sign (apparently the price can shoot up once that order is filled because the resistance level is broken) and a big order sitting low on the bid can be a bearish sign (the price can shoot down when it's filled because that support level is broken). I've seen traders enter a trade just as the large ask is being bought up to get in the trade right before the breakout happens.

Many orders going through T&S with a small bid or ask means someone is hiding a large order, although I'm not sure how that would affect a trading decision.

Please share some of your own insight!

 

[longandshort]

Honestly not very sure what edge there is for a retail trader in using level 2s or t&s. For traders at funds/banks, you’re constantly evaluating liquidity and market impact of a trade you make, so to estimate the price you’ll get on a trade, level 2s can be helpful.

For retail, you won’t be able to discern any meaningful information, because the random noise that you see is actually complexity on behalf of larger traders. In order to exploit information in level 2 you’d need to have a good grasp of market microstructure, how orders are routed, and such— but then you’d also need colocate your server or take advantage of discrepancies between different or new exchanges. That’s the basic premise of HFT, which is to use complexity in routing/exchanges to create an opportunity to exploit (lag in orders).

 

[Robert Morse]

Hi Vince- We offer both Level 1 and Level 2 data feeds. The Level 1 Bundle on Lightspeed is only $10/Month for non-pro. I assume, many will disagree with me, but I'll make the case for Level 1 for most traders. If you choose the L1 Bundle, you see one level of each exchange and ECN in the Market Maker Window. The top price and the next price often take up about 6 to 8 lines and about 15% from top to bottom of my display. Momentum stocks move very fast. Active stocks like AAPL have a large number of orders on the inside market and outside that blink by. If you pay for level 2, and we offer up to 30 levels, viewing even 3 prices outside the best, means you have to look at them and not the inside market and you have to make your market maker window much larger. Mine, for just 3 price levels for NYSE, ARCA, NASDAQ, EDGX, BATZ would now mean my market maker window would have to be much longer, taking up 50% or more of the screen from top to bottom to see it, let alone process it. Go to 5 and top to bottom on my resolution of 1920 x 1080, the window would take up the entire screen size. If you don't make it longer, you are not seeing what you paid for. I expect that looking at different levels, processing that, and making a decision with such a large number of automated traders, is not a great way for most to get an edge. I do like to watch the time and sales window as they are color-coded for down and upticks. I'm not a day trader, but I can process that and make trading decisions from that.

 

[Turveyd]

L1 and L2 is too fast and too much info most of which is pointless, only shows limit orders not market orders, if there is loads of buy support below the bid and loads dump at market it'll look like support but just burn through it, so pointless.

Stick to fast charts, M1 or 10seconds, join the live direction, stall on exit.

 

[qlai]

Many orders going through T&S with a small bid or ask means someone is hiding a large order, although I'm not sure how that would affect a trading decision.

Well, if you would like to buy but you see that offer holds, maybe it’s better to wait for it to clear first.

 

[TrailerParkTed]

L1 and L2 is too fast and too much info most of which is pointless, only shows limit orders not market orders, if there is loads of buy support below the bid and loads dump at market it'll look like support but just burn through it, so pointless.

Stick to fast charts, M1 or 10seconds, join the live direction, stall on exit.

The Op wants traders who have been staring at the Level 2 since late 80s to share what and why makes a profitable trade. Your reply is good! I started to use a longer chart(1-3 min) trying to confirm the crazy moves algos and Retail are making.

 

[Gaslight Capital]

Please share some of your own insight!

I find the DOM incredibly valuable in bonds and notes, but its value in ES has been greatly diminished for me. I am not a scalper by day trader standards, and the primary use I make of the DOM is as a means of judging the strength of a breakout or likelihood of a reversal when price is at a prior level of support/resistance. For me, the DOM has been largely, though not entirely reduced to price display and a tool for adjusting and occasionally entering orders.

Regardless of the market, price is king and he does whatever price action, his queen, tells him to do. If you are new your time will be better spent studying price action. Al Brooks's price action trading video course is currently priced at $399 and if I had known as a beginner what I know now I'd have happily paid $10,000 for that course.

 

[VinceField]

The Op wants traders who have been staring at the Level 2 since late 80s to share what and why makes a profitable trade. Your reply is good! I started to use a longer chart(1-3 min) trying to confirm the crazy moves algos and Retail are making.

I believe my request was a bit more specific than that. I actually gave 3 specific examples and I've only been trading for a few weeks. I'm sure you could think of something to share if you tried.

 

[RubiconTrading]

I find the DOM incredibly valuable in bonds and notes, but its value in ES has been greatly diminished for me. I am not a scalper by day trader standards, and the primary use I make of the DOM is as a means of judging the strength of a breakout or likelihood of a reversal when price is at a prior level of support/resistance. For me, the DOM has been largely, though not entirely reduced to price display and a tool for adjusting and occasionally entering orders.

Regardless of the market, price is king and he does whatever price action, his queen, tells him to do. If you are new your time will be better spent studying price action. Al Brooks's price action trading video course is currently priced at $399 and if I had known as a beginner what I know now I'd have happily paid $10,000 for that course.

In the PA course, how would you rate the section on trading the open?

 

[RubiconTrading]

I believe that the Brook's video course is of uniform high quality throughout. The value you get out of any particular section in part two, "How to Trade Price Action," where the section on trading the open is found, will depend upon one's experience level. If you are relatively new and going through the course on your own without the help of a more epxerienced trader then you should find the entire course valuable. If you've been trading for a number of years and you are consistently profitable but looking to sharpen your edge or simply gain a better grounding in trading price action, the first half of the course, Price Action Fundamentals" may be all you need.

You can take five years of trading the open day after day, or you can study the 3 hours and 15 minutes Al devotes to trading the open. Eventually you will learn concepts that will be helpful in developing a plan to trade the open no matter what it throws at you on a particular day. That being said, I am not sure how helpful Al's trading the open videos will be if you skip the 83 hours of videos that comes before it. Al's course starts basic and builds and builds and builds. It is a mistake to assume that you are too advanced to spend time on the more basic videos. If you are going to take his course, start at video one and go straight through. He does have a few videos on forex trading in section three and to this day I have never watched those as I never have had any interest in trading spot forex.

The course is top-notch. He put a lot of effort into the course, both its design and execution. I have recommended it to many and I do not know one who didn't see his or her trading improve measurably as a result of the course. But it is not a "pick and choose" course, and the 59 hour fundamentals section should be the main focus.

lame avatar but a good reply, thanks...