90 - 95% of all quotes are spoofed by HFT's - you can no longer trade based on the level-2. Pre HFT you could use L2 to get a bit of an edge, but even than the the big market makers like Goldman were pretty good at creating all kinds of fake moves to lure in day traders before 'dropping the axe'. These games have always existed, now a days with the humans market maker replaced with super computers (HFTs) with priority data feeds you don't stand a chance. The only work-around is to expand your time frame for holding a position since you will not be the one losing the bid-ask spread on the majority of trades. At best you can use L2 to get an idea as to the pace at the moment quicker than just looking at the volume bar. The volume bar, market profile, up volume versus down volume, are reliable for gauging the demand of the stock or ETF you are trading. Eric Hunsador (founder and CEO of the Nanex - micro market expert) Mr. Hunsader: The new world is now a war between machines. For some perspective, in 1999 at the height of the tech craze, there were about 1,000 quotes per second crossing the tape. Fast forward to 2013 and that number has risen exponentially to 2,000,000 per second. And yet there are fewer market participants today and actually less trading. All this noise comes from the High Frequency guys trying to game each other or fool traders. Today, 90 to 95 percent of all quotes emanate from High Frequency machines…… This doesn’t imply share volumes just quotes traveling on the tape. Mr. Hunsader: I might add that today in 2013, it is any “limit” orders where the retail investor potentially gets shafted. Say Bank of America (BAC) is trading $13.93 bid and $13.94 offer. The retail investor has very little chance of being able to buy on the bid at $13.93. That person is typically at the back of the queue, behind all the HFT’s. The only time they get filled is when the quote rolls over them (the bid becomes the offer). In most cases, for the retail investor it is better to buy BAC at the $13.94 offer, get filled and not risk the market moving and not get filled at all……just pay what amounts to a one penny “toll” to get filled. In the old days of human NYSE market makers, or specialists as they were known, the retail investor had a much better chance of buying on the bid.
As everything in trading, you have to test it first. There are traders making profits of this "volume size lecture" of the markets. But you need the past data of this volume, and this kind of level III tick-by-tick historical data is hard or expensive to find. Just can't jump to a conclusion simply viewing that the size of the bid is greater than the size of the ask.