Hey, I'd like to start this thread for anyone who knows or is trying to understand more about that box. I've been shaken all too many times only to see that my entry was perfect and vice versa. By paying extremely close attention to the Game/L2 and Truth/Prints, I have been making some great low risk high reward plays. It would be great if you could share some of the common practices, suttle hints, etc. that you have picked up on from your trading experiences. Maybe you can suggest some good books on the subject or tape reading or whatever. All I know is that I have spotted someone(usually a MM not showing size) that was truely a strong handed buyer/seller and joined/bettered his bid/offer, got filled, and then boom he moves us to the next level...beautiful. Of course this can easily work against you more times than not, especially when enforcing tight tight stops. Any thoughts ?
I found that not looking at L2 simply worked better for me. L2 is one big poker game, so unless you view it that way, you'll be fooled. I've found the same to be true for the Globex limit book, btw.
Thanks for the reply. I can understand how not looking at L2 can really work for some and I actually tried it again yesterday on this play. I put a short on without the L2 and it was working....until it shot up and I stopped myslef out......when I got to talking to another trader about the action he said, " What ?, you didn't see GSCO supporting it and then run it up??" Where's the Beef vs. What's the BS.....that's the question. I like reduce things as much as I can but I prefer to have all the info first....so I suppose that's why I have to work so hard.
If you can elaborate on how NOT looking at L2 has improved your profitability, I would love to hear it.
I find level II to be an excellent tool when I'm trading thinner stocks that have an ADV between 50K to 750K. The "true intention" of buyers and sellers is more evident on thinner issues, and, one can discern to a reasonable degree where the market is heading once resistance/support areas are taken out on an intra-day basis with a reasonable volume surge. Trading thinner stocks can be tricky at times, especially when setting up stop loss, again level II is key, in these instances. One must identify a bid they will hit if the momo turns against them... if you miss your exit, often times the next reasonable exit can be 20+ cents away. Level II allows you to see the depth of the bids (which are almost always real in thin stocks) which allows you to position size properly and identify an exit that matches your position size. When it comes to stocks that trade over 3mil shares a day, well, level II becomes more of a "blur", identifying raw supply and demand is far more challenging... I usually stick to TA, chart analysis, to plot my entries and exits with stocks trading in excessive daily volume. Stocks that trade between 750k and 3mil. ADV is a grey area for level II, and will depend on the stock's "personality" sometimes level II is going to be a useful tool, sometimes not. Some MMs use very predictable level II patterns, that can be played with high % probability in this volume catagory. However, often times there can be plenty of head fakes as ADV increases. -- Z
Level 2 seems of greatest value at those times when Market Maker quotes are most likely to represent "real" buying or selling interest. During the early post-opening period, especially on stocks that are undergoing major moves, or when stocks are testing critical levels and about to undergo a reversal, MM quotes and positioning can give critical, actionable clues regarding the likely direction of trading. If you're aiming for more than a scalp, however, and want to avoid severe financial injury, I believe you need additional information - confirming indications of various types, including especially a valid and workable analysis of support and resistance. There are times also when evidence on the L2 screen sometimes just has to be taken at face value. If you're short a stock that you believe to be overbought, but tests of significant levels are repeatedly met by huge orders appearing on the bid, then you're often better off closing your position and looking elsewhere for opportunity. As with almost any day-trading tactic of which I'm aware, however, there are exceptions to this rule.