Best resource to learn Level II?

Discussion in 'Trading' started by Splat, Aug 11, 2003.

  1. Splat


    Please tell me! Preferably CD/book/video.


  2. My advice is to forget Level II and trade the the price action on the charts. I'm not saying that you can't pick up anything from watching L2, but the L2 action can be deceiving. The charts are less apt to lie.

    Watch L2 if you want and use it as a distant secondary tool. Gazing at L2 can often cause me to miss the bigger picture and imo the bigger picture is where the money is to be made.

    Best Regards and may your trading be long term profitable,

  3. ChrisRT


    Level 2 in the sense that I think you want to "learn" it is outdated with the onset of SuperSOES and Decimalization. There will be a few times that you see this or that player and find some blocks going off as you realize his intentions, but as a whole, Level 2 is more of a risk assessment tool in order to see how much liquidity is available and how to execute best prices. The clues that were available back in the late 90s are no longer the same and I'm not sure I know of any "updated" books on the usefulness of Level 2. Perhaps, if you wanted to learn how to do something specific, it would be an easier question to answer. But as is, I fear you will waste time reading old material that doesn't apply today.

    My Level-2 cents worth...

  4. Watching L2 is like playing poker. To say it is not helpful is not accurate for everyone. It may be helpful to you, it depends on how good you are at figuring out who is showing the opposite of their intentions (bluffing!). Not sure if you can teach this, but the more you watch L2 in your stock, you will see some patterns, for instance you'll recognise INCA pegged orders (ie wait for the stock to run) or MMs stepping in (ie don't trade against MLCO, they always come in with alot in reserve), for example..

    I think more likely to believe MMs, they don't fool around as much as the ECN players, but ALL are using reserve, which is the main tool used to hide your true intentions.
  5. Sorry, but get a simulator and work it...and also, sit next to an experienced trader...books don;t tell you squat....especially when it comes to crooked market makers
  6. Splat


    Hi, Thanks for the replies!

    My primary source is charts. But for backup/confirmation I
    want to use Level II+Time and Sales. I reckon if you can
    get proficient in these tools they can give you a true edge.
    The MM's may try to deceive you on the Level II, but
    the T&S doesnt lie.

    TM_Direct: Any examples of a simulator ?


  7. Pointdirex has one as does Redwood im sure and a couple otheres...sit down wiht a simulaotr and learn through trial and error.
  8. trendy


    Totally Agree!
  9. Yep... (well, I don't have LVL2 but just a Market Depth) the depth is really a minor part of my trading.

    The book is deceitful and my edge is not in the execution but my analysis.


    If you're not going to be trading in the smaller timeframes, then Level II will be nothing more than a useless distraction. I'll assume that you are looking in the smaller timeframes. I agree with some of the members here when they say, reading alone will not help you. The best way is to watch it for a while.

    I use Level II as a tool for "fine-tuning" entries and exits. You should never make your primary decisions from Level II unless you're a rebate or liquidity trader. Much of the information available on Level II is very dated. There have been so many structural changes like SuperSOES & SuperMontage that have rendered much Level II analysis useless.

    Level II can show you buy and sell side "axes". Years ago, many just looked for axes. These market makers hold up the bid and lean on the offer. One of the ways to find out who these axes are, is to look for "number of best" which is available on RealTick. I have found this tool to be very reliable over the years, especially when the stocks settle into support and resistance zones before breaking out. You're not going to get anything from watching Level II on listed stocks.

    My advice to you is not to get carried away with it. Remember, entries and exits come from TA, you can "fine-tune" them with Level II.

    Good luck.
    #10     Aug 11, 2003