No. Knowing the sizes of the various Bids and Asks can give you an idea of support and resistance. For example If there are numerous bids with high sizes and numerous asks with small sizes it is very likely the stock will rise. This is because It would take so many orders to push price down, but so few to push price up. I take back that L2 is more important than charts. But it is definitely overlooked.
@kivd: thx for the explanation. but many a time, a trader becomes indecisive because there are just too many decisions to make on a chart, thus missing the opportunity. imho, if you have more than 3 or 4 whatever on your trading chart, that you depend on to make a trading decision, you'll probably become indecisive in your decision making; comments applicable only to short term traders. cheer everyone and thx again, kivd. have a wonderful new year, year of the dragon.
I learned to trade using L2 and I still feel that charts leave out a lot of critical information. More than looking at the actual displayed size, I try to see in the DOM which side is more inclined to cancel their orders... and which side seems to want getting a fill... This helps in figuring out which side is dominant at any given point.... One of the best posts I've read out of Jack in years... straight to the point, no going around the bush & pretty clear explanation of key market micro structure concepts. (didn't quote the whole thing since it is a bit long... as usual)
A couple of things. First off, the L2 was and is one of the more manipulated "indicators" ever used. Many traders would simply place an order for 10,000 shares a couple of pennies below any "real" bid...the "L2 readers, from one of those schools" would see this and think that GS or ML are big buyers. They would run the stock a few cents, the "buyers" who were actually "sellers" would hit the bids, cancel their bids... leaving the L2 readers wondering "what happened to those big bids?" With auto programs set to "cancel if close" (a made up term for what was going on. So, as a professional tool to jerk around the retail people, sure. But most figured it out after a few years. Now to the sub-pennies. When you see a number of trades going off a few sub-cents below the actual quoted offer, get ready for them to take out the offer to cover their (only 100th of a penny) loss. And vice versa of course. Watch this on T&S, you 'll see what I mean. FWIW, Don
Optimizing doesn't come from more and more detail necessarily. Level 2 represents a wonderful compromise for trading on a given fractal. You can ignore HFT since it is just a market smoother. What is possible is to go through the green curtain to see what is "controlling" the market in terms of group or herd psychology. The one part of the herd to focus upon is "smart money" and money talks. The most important part of trading observation comes down to WWT. To transfer the "tape reading" of the "olden days" to the modern PC use level 2 arranged vertically and two T&S's. All and 50 or more. If you find you are particularly astute you can add Granularity and two line theory. Settle in visually and notice the ranking principles you need to use: 1. color on the active side of BBid/ BAsk. Know thoroughly that you are looking a market orders of smart big money entering to take advantage of the existing sentiment. Also Know that you know whether it is dominant or nondominant sentiment. As you eye muscles learn to follow the infernce from your long term memory, begin to look where you know that you know to look. 2. Use the walls to judge the available trading range of the sentiment of the market. From the place of trading one way to a wal is the dominant range. The other way is the non dominant range. You can do this in 10 to 100 milliseconds. Notice how your fear and anxiety fade away as you recognize that nothing changes as you did these two appraisals. 3. Now do a routine of glances until you realize just how the fast subfractal trading forms the three moves of the subfractal. Most stop reading here due to alternative incompatible belief systems. See if you can suspend these for just about another 50 lines of strategic information that you DO need. What you will see is the walls holding steady. If not ignore the jumps for a while. Notive the action moves to one of the walls. Then it moves back to the other wall. Then it repeats reversing back to the other wall. you have just discovered the market's volatility and it is in direct relation to the market pace (as easily measured by the passage of a standard amount of time). Market users of profiles get screwed here. Just so you know that if you make the decision to cut back on your personal performance by getting trpped in profiling. As your mind comes to understand market volatility, you find you relax even more as you make money. do not mistake this as noise or gyrations. This is the herd being lead by smart money. If you have a lot of capital you are in the market all the time and doing what? Setting limit orders. You are looking at the herd and smart money orientation as you look at the walls. They are on "round numbers" generally and do not migrate; instead they jump by a point or two points. 4. Look at the wall to wall spread. Adjust to considering if it is changing. Notice it changes in two ways. It stretches or it squeezes. Just keep looking. Can you begin to see how a tend is like an inch worm? Which way is the inch worm facing? Notice he pulls his ass toward his face first tnen because of the smell he streches his nose away from his asshole. The rain is mostly on the plain. I think you've got it. ass nose ass nose as a trend _________. "continues". The trend is mostly where he's looking. Dom ....non dom ....Dom. Add the drum beat and the music to the lyrics. Its two things. there are two things. the worm is moving and he is doing dom and non dom and then dom again. 5. you all have learned about: "and the worm turned". Now we get that straight. He is on a twig. The worm is mostly on a twig. He has to scrunch up. he does the scrunch (tight spread). Then he climaxes over his trunk (his body not a big twig) on a high volatliity bar and maximum volume pace. And kicks his ass way back. See wall go to new place where spread is greater (normal). This takes 100's of milliseconds. 6. Then the new trend begins again. Ass nose assnose in the NEW Dominant. So you see and ending with a dominant and a begining (after the scrunch) on a new dominant in the opposite direction. 7. So you do this. Make some columns on a sheet of paper. You need ones for ass nose twig direction scrunching and climaxing. 8. Last and not least is watching the walls as they are replaced. Notice that a new wall has to be bigger than the existing wall. Thats all. That is why they do not migrate and why walls like "round numbers" more than ticky numbers. When a value becomes less that the largest, then it is mostly still there and the market action is going past all those limit orders left in the lerch. Where to the orders go? they are pulled and put somewhere else after the planned trade has been rejected and not exercised. you see most people will place their limit orders without regard to FIFO and the fact that the T&S velocity is less than the size of the pile at the wall (as a time constraint, for example). 9. How to read the difference between a retrace and a reversal. Both occur on market pace peaks. Look at volume. If you don't have a peak (use PRV to see it at the beginning of the bar, then the market is not going to change trend (reversal only) or just change to non dominant (retrace only). By now you can see what matters for taking all the market's segmented offers. Look at the fourth decimal point and level 3; they do not matter if you are a big time money maker. If you do table scraps from "edges" then you can use the DOM to trade at all. This was pointed out. Give a thought to taking the full offer of the market. the DOM, as you see turns out to be a leading indicator of price. You see end of trends, change, and beginnings of trends as separate always in order events. Read BF or BS on the home page of Behavioral Finance. there you see how a person must deal with pre change, change and post change as a way to improve his approach. The stated preamble is this: If you notice your anxiety, fear and anger increasing, then make a change in your approach. I could expand this post greatly but I will settle for being told again to not post. The OP is a catepillar looking for leaves to munch. When he gets full he will spin a web around himself and go away for a while. Will a mouse munch him up or will he hatch as a butterfly. Stay tuned I may amplify on all the details later. For now just purposefully look at the DOM and T&S. When I connect all the dots you will be amazed.
hi jack how are you doing? are you burnt out yet? did you remember to take your prescription on schedule? and for your own better mental health, do not overly overextend yourself, OK? take some time off, it will be good for you. cheers and happy new year.
I settled in the 9 digit problem solving range; it certainly isn't full time. It is so funny how the meds routine gets more and more complex. I'm settling in at a BMI of 22 as my optimum as I approach 80. We just paid out about 5K (a seasonal value) to get our plants trimmed and the leaves raked (a 24 foot dumpster full); not my job anymore. Nowadays, i'm so slow in writng new copy for the book coming up that it takes me an hour and 3/4's to knock out five single spaced pages.
L2 Like the elephant and the blind men There is no one interpretation on anything you see. Only by careful study of EVERY Jack hershey post can you divine the true meaning and thus the next tick. Here's a head start PS If there were some simple catch all rules, those that profess to know them , would be tweeting from Tahiti, and they're not.
I did not repeat often enough that you need to do each of the numbered steps as a drill. Now let me explain the word drill since there may be 9 drills ahead of you (I doubt it since you are a shortcutter and waiter). Long ago you were a learner. You could of either learner to operate a hand held calculator or did the older tasks of learning to multiply using a set of multiplication tables. You could have said I'll wait for the Calculus hand held calculator and you then skipped multiplication. At any rate, mankind has used memorization for many things. The Russian peasant method of multiplication comes to mind, however. Is there a multiplicand and a multiplier? Let assign those names to things you multiply together. Lets call the answer a product. A peasant would divide one of them by 2 and multiply the other by 2 until one is used up and the other is the answer. Others use the set of multiplication tables and follow a specific sub process to get answers. Having the set of tables memorized is a common past experience. This is exactly how the potential trader gets rich. He drills away at each task until he can do it in 10 to 100 milliseconds by matching two sets having an identical number of elements in each set on a one-to-one basis. This means he matches what he sees (Monitors) to the element of the analysis (answer sheet) set that exactly and finitely matches. Or a person guesses for 10,000 hours. Neither of these alternatives involves reading something and then stepping out and using what was read. People get C's in History class by just reading. C+ History majors from the Ivy Leagues run the corporations of the financial industry so they are easy to beat. It takes three generations to create and then destroy wealth. Task 1 was to learn to ID the new owner and the old owner. In CW trading, each of these guys switches his emotion set from one set to another. In learned trading where the mind is fullydifferentiated, the emotional set is always the same. So what I posted was hard to understand. This is you telling yourself that your mind is empty of inference regarding each of the 9 tasks and collectively the connection among the 9 tasks. To fill your mind you need to do short term memory long enough to convert the short term memory inference to loong term memory inference. you can read about two subject to get this straight: how to learn; and how the mind works. Wait or think up a shortcut for these two things. Throw away a potential fortune or acquire the means to having a fortune. If you have kids, ask them to tell you about inch worms. If they squish them, then you have a family tradition going on.