Trading based purely off Nasdaq L2.

Discussion in 'Trading' started by momotrader, Apr 3, 2002.

  1. I've been lurking on this board for a while and have read with interest all the posts about trading here...

    But, for all the talk of trading on this board, there seems to be a lack of discussion about trading Nasdaq stocks based purely on the action in the L2 box and T&S window.

    I'm currently a prop trader at a large daytrading firm, and despite the changing market conditions, trading the box is pretty much all we do at our firm. Very few people trade off charts, news, fundamentals, swing trade, pairs trade, or any of the number of other strategies that posters here employ. It actually seems frowned upon at our firm to trade anything "but" the box.

    Now my question is, does anyone out there that trades their own money trade "only" the box? Or do you employ other strategies along with the box? There are a few traders at my firm that try to employ intraday charts with box-reading, but with mixed success.

    How much emphasis do you place on support/resistance levels if you see a size buyer or seller aggressively pushing through? Do you trade multiple positions? Do you have problems with consistency or getting size when you need it when you only trade this way? Does anyone that trades this way see a problem with SuperMontage?

    Hopefully we can get a discussion going here about this, as my firm's trading strategies are rather narrow, and I am currently investigating other options I may have to further my trading options.
  2. which firm are you with?

    what does box trading really mean?

    I guess you use hotkeys, which means that you buy at the Ask-.01 and sell at the Bid+.01 and SShrt at the Bid?

    when you compare your environ to what you've read, what do you like about firm X or Z or Offsite Trading (all puns intended)...

    what are your intentions? such as getting into other forms of trading?, moving off Level III screens down to Level II's? what?
  3. If you don't mind me asking, which firm? U remind me of some of the tradescape guys i knew. Never got to work for them though.
  4. I myself am a prop trader (scalper) and here are the resources I use to make trade decisions, in order of importance...

    1. Level 2/ T&S - if can't interpret these, you shouldn't be scalping
    2. Squawk Box - the feed with Ben Lichtenstein kicks ass (I also watch the Naz emini ticker)
    3. Intraday Charts - knowing support/resistance, relative highs/lows, moving averages can be quite helpful
    4. Cleo's Psychic Hotline - don't let the "fraud" charges scare you, this girl knows her stuff
    5. Any coin - 50% success ratio!

    That is all.
  5. The firm I work for has no relevance in this discussion and I don't feel comfortable disclosing that information here.

    Assuming you're familiar with Nasdaq L2, box trading is basically staring at L2 all day and watching for buyers/sellers and trends/momentum. Basically, you watch to see what each market participant in the L2 window does in response to orders sent their way. If GSCO is at the inside bid and refreshes for size 10 several times when hit, chances are he's buying a bit of stock. If he drops, you watch where he goes when he drops. Does he drop 10c? 20c? all the way off? Does he come back later and refresh for size 10 some more? Does he come up high bid several times and soak up stock? In that case, you'd probably want to get in ahead of him and sell on the way up hopefully catching a quick gain. You watch for the same thing when shorting. Hopefully you can chisel the seller and get short ahead of him, if not, assuming the circumstances are ripe, you can still hit the bids and get short. A lot of times in the past few days with the hard hit stocks (say, ADLAC, GMST, PSFT, etc) a few big ECNs like BTRD or INCA showing size 1 will come down hard on the stock and you can ride the stock all the way down until they lift and the situation changes.

    Yes, we use hotkeys. You'd have to. To not use hotkeys trading the box and the momentum would basically leave you holding the bag in a stock.

    I haven't visited other firms to make a judgement call. What I've read about other firms gets me very interested in finding out more about the way other people at other professional firms trade. We have a very communicative trading floor. Stocks and plays are called out frequently by very successful traders. Some people trade only one stock, say, BRCD or NVDA, while others trade many of the "in-play" stocks. I'd like to know if that's the case in other professional firms or if people just sit quietly staring at their positions.

    Although limited in risk, trading the box makes it very hard to trade more than one or two positions at once, not to mention holding stocks overnight. There are many days when the market is obviously trending strongly in one direction with very weak counter-trend moves where I wish I could just jump in 5-10 different positions, set stop-limits, and keep an eye on the charts for any other actions I need to take on my part. There are also those times I would just prefer to hold stocks for a few weeks at a time as the stock slowly trends up/down.

    As to L3, that's for MMs only, FYI.
  6. To not use hotkeys trading the box and the momentum would basically leave you out of luck.

    The L2 for momentum is key in determining the direction. As for the psyche of playing one issue allday it may be boring for some but I think that boring and profitable is better than exciting and break even. If its working keep it going. The beauty of the trading group is sharing the info. Nowadays the trading chatrooms are trying to duplicate this.
  7. excellent answers, 100% correct, even on the obviously misdirected questions (like Level III's).

    Hey, I might want to see your firm and trade in a similar manner. I know that a few of the other posters on this board do what you do, in similar manner, but the vast majority of other traders don't evidence such finely tuned skills, as you evidenced here. So I don't think they're trading hotkeyed to the box.

    You obviously know your stuffffff!!!!
  8. what software do you use?

    I know that the type of trading and analyzing and hypothecating what's going on, based on MM participants and trend/order flow/tape reading requires that the L2's show a good bit of detailed information.

    Most DA (direct access) software platforms provide a mediocre level of L2 details, which makes the type of interpretation that you mentioned, nearly impossible. Anyways, this board thrives through anonymous sharing of (presumably honest) details of each other's trading environs, so feel free to share about your firm, instead of being uncomfortable...
  9. 360modena


    I'm really new to the boards but I trade a friends' money, and I've found that during big or decent volume days, I trade mainly off the L2, I mean come on, you can't ignore when someone's refreshing, and not wonder why the stock is just sitting there, or the momentum has dried up or is fading... but for lighter days, I tend to look at the charts and weigh it more than L2, maybe I've got it all wrong, and indeed I've only been trading for 3 months, but I come from a swing-trading background and can't help but to look at support/resistance, and patterns, etc...
  10. I can only talk about a few things I do as I've signed non disclosure documents with my firm and traders in my office I teach are required to sign the same forms.

    We trade a black box system, heavily run with rules but it easily averages over $1000 per day

    I play news constantly

    There are some traders who play with broker upgrades /downgrades.

    Opening Orders are big for this office.

    I do an overbought/oversold system (which I've disclosed in other threads)

    Some of the other traders run scans daily. When they something that is working they tell the other traders in the office what they see.

    I've developed proprietary filter in First Alert that seems to be right about 80% of the time when it produces something and tell the traders about it.

    So yeah the office is verbal for Echo here in San Diego. Other times it gets slow so we start up a round of competition golf to see who can out putt the other traders, fool around on the internet, watch movies and so forth. Traders in the office are taught that there are times it is better not to trade. Wait for the opportunity when it arrives.

    That helps sum up my office

    Robert Tharp
    #10     Apr 4, 2002