In my experience my trading has gotten a lot better when I stopped staring at Level 2, time and sales and the 1' futures the "indispensable"tools presented in all the daytrading books. And I don't even try to figure out what games GSCO or NITE are playing. I would tell the newbies to take what they read in the books with a grain of salt.
Without getting into a lot of detail, the good MMs are good because they can do one thing: Move a lot of shares and hide what their intentions are (ok, that's 2 things). They'll very rarely blatantly show size and broadcast to the world what they're doing. If anything, when they're showing size, they may be working the opposite side using INCA or another ECN.
A valid point for sure,. However just to clarify when GSCO has reserve size, he must display at least 1000 shares, BUT it WILL decrement from 1000 down by each execution size and then back to 1000 as it refreshes from his reserve. For example if he is SOES'D for 200, 300, then 500 shares, you will see his size go to 800, then 500, then back to 1000 (it will not show zero before refreshing to 1000). I make this point because it is important to notice if the size is being decremented to make sure he is actually being hit and as you say "soaking up the bid". All those prints on the TS you referred to could be going to somewhere else, even if no one else is on the bid. Only a fraction of the total daily volume on the Nasdaq ever gets represented in the L2 quote. I agree that this is a key sign as well and note its occurrence often. However I have always wondered why the supposed independent MM's at these individual houses would all act in concert when you think they would have competing agendas and not always be ont he same side. Do they just see the scenario setting up and think "Oh here we go, I know what GSCO, MLCO, and BEST are going to do now", and then do the same thing, bail on the bid and watch the weakhands react in the same fashion over and over again? Or is this a form of collusion at work here?
The 1,000 reserve size rule was changed back to 100 in Nov. Head Trader Alert #2001-158 - October 9, 2001 SuperSoes Reserve Size Display Requirement and Refresh Increment Changes Effective November 1, 2001 Overview Nasdaq® has filed a rule proposal with the Securities and Exchange Commission (SEC) to eliminate the 1000-share display requirement when using SuperSoesSM reserve size. Nasdaq expects to implement the rule change effective Thursday, November 1, 2001. Filing Information The proposed rule change eliminates the current requirement that a quoting market participant display 1000 shares when using Nasdaqâs reserve size feature. Effective November 1, 2001, SuperSoes participants will only be required to display a minimum of 100 shares, or 1 round lot, when using the reserve size feature.
I have traded profitably for 2 years scalping stocks using just L2. Since the implementation of decimalization and supersoes, L2 has become an unreliable indicator. It acts more like a "slip n slide". If anybody can "truly read" L2 since supersoes, I would like to hear their comments. It was a sad day for the scalp traders. :eek:
afoaf had a small prop firm that went belly-up in December. His handful of traders who were making money all started losing after decimalization. Fast finger nasdaq scalping has gotten much harder, but it is not impossible. Some traders will adapt.
So if the last sentence holds true, go short when you see a big MM bid and the stock doesn't go up, and go long when you see a big MM offer and the stock doesn't go down. I also notice that Nasdaq stocks,don't know about listed, tend to trade toward whole numbers,especially when there is a big size bid or offer there.
as long as you understand that Level II mostly is a poker game, it might be useful to you. The market makers are excellent at hiding their true intentions and will often indicate they exact opposite interest of what they really need to get done. Remember, that most MM makes their money from trading large block orders, not from "providing" a market.
I would tend to agree with all this, however, you do not really need Level II to gather all the information you are talking about. Isn't it rather irrelevant if it's GSCO, NITE or some other particular MM? Other than the particular MM's name, all the information you are referring to is really Level I with "exchange stamps". Anything that is not at the inside bid/ask at least for its exchange/ECN is just as likely to be fake as real, with a slight bias towards truthfulness at the ECNs whose market depth anyone can view in realtime for free. On the other hand, you could argue that this slight bias comes from all the little guys who don't care if their 500 share order is displayed in the ISLD book and probably don't even know they could hide it, and those guys are not too useful an indicator one way or the other. Thank you for this information. It was obvious to me (looking at tick data) that something like that is going on all the time, but I did not know the exact number of seconds.