Level II and T&S

I am newbie NASDAQ equity daytrader from UK using IB for trading (100 shares maximum) and eSignal for data and charting.

This is my first posting so please be gentle.

First of all my thanks to Baron, praetorian2, rtharp, Turok, zboy, Hitman, candletrader, Privateer, andrasnm and many others whose posts I read with great interest and enjoyment.

Your contributions are helping me to become a better trader.

At the moment I am scalping everything that moves (avoiding fast stocks with large spread) and making all the usual mistakes every newbie makes.

But I am surviving. Haven't lost my shirt yet - only odd slieve or two...

I am using very tight stops, 5 and 1 minute intraday charts of stock and futures, and Level II screen with T&S.

I am having the usual problems with tops and bottoms (like the most people I guess) and would like to improve my tape reading skills, but...I am confused with T&S display.

This is where I would like to get some help.

The T&S seems to show not only the actual trades taking place - but also the attempts to buy at Bid and sell at Ask (and all the attempts outside this range).

I can't distinguish, for example, when somebody has sold stock on Bid or trying to buy stock on Bid - both actions are shown as 'ticket' on T&S.

Can somebody, please, clarify this for me.

Thanks in advance.

 

My 2 cents:
a) Trying to trade NYSE without Level2 is pretty crazy, and that applies even for swings in my opinion (institutions can take a while to get filled in massive size by the specialist, at the price that they requested).
b) Level2 and T&S aren't useful for Nasdaq swings (because there are too many conflicting participants), but are still quite useful for Nasdaq scalping.

Miki,
To try and work out what is going on, look for large institutional footprints on Level2 and Time and Sales which is backed up by intraday trend direction. When a stock is truly in demand, the vast majority of time and sales activity will be at or above the inside ask. If you are trading the NYSE look for the specialist to tilt his hand in size towards the bid. But don't be phased if the specialist shows a large offer at the open; they often do this to deter buyers...in such a case look at time and sales for large institutional ask side prints.

Edited Addition:
Airspeed, I am using the term Level2 pretty pretty loosely. From a pedantic perspective, Level2 doesn't actually exist for NYSE stocks, cos one is dealing fundamentally with one specialist. By using the term Level2 for NYSE stocks, I am actually referring to the NYSE inside bid and ask, the size and the time and sales. You are totally correct to infer that Level2 (the strict definition) doesnt actually exist for NYSE stocks!

 

Miki,
You should filter your Time and Sales to only show Trades that take place. This will cut out the confusion and noise you are seeing. You can always go back to the default when you feel like it.
I set my Time/Sales to only show trades with "at or above the ask" coded GREEN. At or below the bid coded RED. Other trades are coded WHITE.

 

CandleTrader, you wrote:
a) Trying to trade NYSE without Level2 is pretty crazy, and that applies even for swings in my opinion (institutions can take a while to get filled in massive size by the specialist, at the price that they requested).

I'm not sure if I understand how the Level 2 feed can be of help to you in trading listed stocks. Would you do me the favor of expanding a bit on your answer? Thanks!
Best regards,
Jim

 

Miki, welcome to the threads and feel free to throw the questions out there -- we are all learning as we go.

M_c is absolutely right about your time and sales setup. T&S would never be useful for me if not for the filter he describes. The color coding is also important for me because out of the corner of my eye I can tell if there is any consensus as to the direction of the trades just by looking at the color of the tape.

Please don't try to read too much into nor make decisions solely on LVL2 or T&S without first finding the right chart setups. Wait for those bounces off of support and resistance and then use LVL2 and T&S for confirmation.

JB

 

Airspeed, I have added some comments on this to my previous post.

 

Thanks m_c_a98 and Turok. Changing the T&S filter did the trick!

Having spent last Friday getting used to this ‘new’ feature I have realised that I was very lucky to have survived this long without this vital trading instrument

I took me a while to find the ‘rhythm’ but ones I did I began to understand what people mean when they talk about trading based on technical aspect and ‘gut feeling’.

I was able to ‘see’ flow of price movements (including head fakes) much faster and react to them.

Is it my imagination or do the head fakes come in two flavours: the ones that fizzle out (the traders recognise them and ignore them) and the other ones that become a small rallies before they fizzle out (the MMs start them, newbies jump in and traders finish them).

Anyway, I am much happier now with my trading because this small change to my technical setup enabled me to time my entries and exits much better.

I have somehow graduated from a technical gambler to a technical trader.

I feel that I am in control of my profit and loss and not the market – that makes all the difference.

m_c_a98 and Turok – I owe you one.