Baron, I agree that nothing is perfect but painting the tape with a few 100 lots is easily identified as such. When you see massive volume crossing at that price level its different. I guess it depends really on your strategy and edge. I have nothing against LII. But since my trading horizon is longer than a few minutes, I believe that tape reading + charts is good for me.
Whether or not a trading tool is necessary depends on your trading style. My game is the extreme to very short-term. Each and every price movement is potentially profitable. Hold times are from less than 1 minute to about 10 minutes max. (20 min. if trending). It's hard-core, all day, and I could not see all market participants to trade as I do without Level II. Level II and Time and Sales are critical tools for trading the short-term. Market-makers are co-participants, not enemies, and their behavior is a significant part of the short-term world. As described by Hoyler and others above, the short-term trader uses Level II to observe the behaviors of co-participants (and quickly profit from it). Also, if using a direct-access platform, the Level II display is used to quickly configure orders (click on a Level II participant to load price (and route on some platforms)). For those not trading a direct access platform, or trading infrequently, or trading longer time-frames, and for those satisfied to get in and out a little sloppy, Level II will probably not add anything to the bottom line. It will look good on your trading screen though.
Baron, >Although I'll be the first to admit that L2 can be misleading at times, the other indicators are not much >better. The saying that charts and T&S are "reality" is extremely flawed, in my opinion. We disagree, as I think both charts and T&S are better because they are real and L2 is a poker game. And by that I mean they are what actually happened. L2 is about what might happen, should happen, could happen, probably won't happen, but not what has happened. >If they were reality, then there would not be terms like "erroneous prints" and "false breakouts". I don't think a few erroneous prints negates the reality of the overwhelming majority of information in the T&S window. Regarding false breakouts, "false" or "real" or somewhere in between, that's what happened, and that's what the chart shows. Again, like prints they're not 100% perfect but probably not too far off. >you can base your medthodology strictly on charts and T&S, and still get manipulated and burned on a regular basis by >other market participants. Absolutely agree with you here. I never suggested that one base their methodology strictly on those two factors. I currently trade all Nas thru ECN's, and regularly refer to L2 screens to see the ECN participants and where they sit in relation to the inside bid/ask. Also I like to see who's the ax and how they're impacting the price movement. So I'm not completely against L2 I just have trouble with the L2 share sizes, from both mm's and ECN's as they are so blatantly false and non-representative of the participants intentions. Aside from mm's often showing 100 shares and then endlessly refreshing, there are also large offers/bids, just outside the inside, regularly put up to panic people and then quickly withdrawn as the mm's or ECN's had no intention of buying or selling those shares. As I said, an interesting poker game... In summary, I use L2 for certain things, and I'm glad to have it, but for the most part I try not to let it's "noise" get to me.
I don't want to touch all other aspects of the discussion, but I must say that you are spelling the truth: a display without those fast changing coloured lines is just not as interesting! Ciao Guido
dozu888 After your 2nd posting regarding MERQ I looked at the intraday chart and forgive my ignorance but I am not seeing what you are obviously seeing, could you possibly elaborate?
fake reversals at 11am, 12pm, and 1:10pm.. you would be whipsawed to the YingYang if you tried to go with the reversals and try to hold to EOD or get at least 1 point out of it.
I would add that another useful feature of LII is the ability to recognize when a dominant buyer/seller has completed moving a large order. In many semi-liquid stocks, the same MM may sit on the inside bid/ask (displaying 100-200 shares) for days at a time. When the cleanup print hits and he moves off, the stock is usually set for a sharp reversal. I agree with all those who have posted about the shenanigans - there are plenty. The reserve function has eliminated any perceived transparency that could have existed.
I'm a new trader (2 months) and learning a lot reading all the post, tks. For now I'm just using Datek (with QuoteTracker) and Level II feed. I'm doing 2 or 3 momentum trades per day on one stock. My goal is to trade even for now (OK so far, I'm +)and go "direct" in 6 months. But I feel the need to have more L2 info such as #BEST and ALL NASDAQ ENC's not just best offer, and keeping all MM details. If I switch to the ARCA free feed I receive all the ENC players plus a Time stamp but lose my MM info. (I'm reading a book by Van K. Tharp he shows screen shots with Level II showing as info as follows: Name -Bid -Chg -Size -#Best/Name -Ask-Chg -Size -#Best With a definition of #Best being "the number of times a market participant remains the best bid or ask, after every other participant has left that tier level". Is this real?) I'm using 10 min charts and T&S but feel I should watch more. I guess I'm just trying to find the Ax and the fakes, but for me it is not that easy. Can I get this from some other paid data feed and do you think it is helpful to my learning curve? If so who? Thank you for your help.
You ask some great questions Maxito Unlike some other participants to this thread, I find LVL2 to be an important tool. In scalp mode I used to use it almost exclusively (only need aditionally a 1m CME NDU chart) and was quite profitably at it. As I have learned the market I have moved to a longer time frame, but I still use it for entries and exits. I like to use an aircraft analogy and say that "no matter how long the flight, takeoffs and landings are still the most critical time". LVL2 would be useless to me without the MMs. They are in charge. I find BEST# to be a joke. I don't care how many times someone has been alone on the inside -- I want to know how long they were there and what they were DOING while they occupied that particular real estate. BEST# doesn't give me that. JB
I trade futures and am thinking of swing trading stocks. My trade holding period would be from 1 day to 5 or more days. I don't know much about Level II except that I've read a number of articles saying it would be essential to day and swing traders. My only concern as a trader is to have fast execution with minimal slippage. My trades would normally be entered using a buy or sell stop order. I would not be using market orders. Is Level II something that I would definitely need to have in order to accomplish the above, or would a regular online brokerage account do the job? Any guidelines on how long it should take an online broker (non-level II) to execute an order? Thanks.