Level II - Useful or not?

Hi There

I am confused about the usefulness of Level II data for US stocks and would really appreciate any views that members are happy to share on the subject. (The context is day trading). It seems to (simple) me that those who have the 'power' to move prices also have the 'capability' to manipulate Level II data for their own ends!

Thanks in advance,

Steve

Absolutely true Steve. There are loads of LII threads scattered around the site and a search will pick them up. Technical Trader forum has a very good one from memory.

Level II was only ever of use for market entry in my view. It is correct that some MM will deliberately try and manipulate prices but not all of them do this. The other issue is that the size of orders being shown are often fake. There are some uses for it if you know how to read Times & Sales data but not enough to be watching all day. I stopped using it when Iraj demonstrated that correct position sizing and other entry techniques worked just as well.


Paul

evostik said:

Hi There

I am confused about the usefulness of Level II data for US stocks and would really appreciate any views that members are happy to share on the subject. (The context is day trading). It seems to (simple) me that those who have the 'power' to move prices also have the 'capability' to manipulate Level II data for their own ends!

Thanks in advance,

Steve

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HI Steve, I used L2 some years ago, found it very confusing looking at all that data wizzing by and missed the real action!!, IMHO, it didnt work for me maybe I wasnt using it correctly, dont miss it , just something else that's a distraction

But good luck in your search.......regards,

I used to use L2 for entry but now I am more than 100% convinced that not only L2 does not give you the edge but also distracts you from learning the main objective of using conventional TA which is based on CYCLE.. Market goes through cycle in any time frame ,, lets miss a perfect entry instead increase our postion size to cater for the missed opportunity... Does it matter how you make $$ as long as you make it and have an objective system to explain all your wins..

As Trader333 said the info on L2 can be faked and |I have demonstrated this in my house and even more obvious in the bank where I used to work .. SO what if some one told you , I looked at my L2 screen and I knew this or that ,,,, I would suggest to get him to this site's chat room and let you to demonstrate it |LIVE.. in fact if he is prepared to do that I am prepared to affect his edge by trading against him and totally mess his analysis as long as he tells me when he is moving in.. simple


This is to day's trades I have already taken 11000$ ( eleven Thousand ) in 4 days swing trade excluding to day and few Intra day and Over nights as shown .. I am up $2000 ish for the day ..
Total up for the week around 13000$,,, Did I use L2,,,,, sod it,,,, NO

PS:_- look at my trades for entry ? which one is perfect ? NONE ( I wish they all were) why did I make money ? simple,,, I adjusted my pos size to cater for the entry and also I was on the right side of the cycle.... DEEP, RSH,TEN INTRA DAY TRADES the rest a mixture of Over night and swing ,,,


Learn money and risk management bro

Grey1

Thanks Bramble, Trader333, Wheezer and Grey1 for your replies. Much appreciated. Sounds pretty conclusive then!

Cheers

Steve

Lovely jobly..

Market crashed nice and clean ,,, I kinda had guessed it but was not sure it would have with the momentum which it did ( MACCI daily was OB MACCI weekly was OB volatility bands shrunk ) \. I wonder if the L2 players managed to identify the AX in their stock to day when market dropped after 6Uk time ,,

This is the wins with no L2 screen in front of me

Grey1

The real question wrt flipping is not if it occurs or not, but whether it is so prevalent that it dominates the behavior of the order book. I read repeatedly on this board posts suggesting that the book is useless because of flipping, but the posts are anecdotal at best.

The following comments apply solely to stock index futures - it may or may not be applicable to stocks, fx or commodity futures.

It seems to me that it is highly improbable that flipping dominates the book. Order matching is where price is determined and supply and demand plays out - where the more aggressive traders placing marketable orders meet up with the more passive traders submitting non-marketable limit orders. It might be obvious, but this is a critical point - the book shows only the activity of the passive participants (and occasionally flippers). The T&S and in particular the traded volume going off at ask minus volume going off at bid. This is a clue to the sentiment of the aggressive traders. Supply and demand.

Apologies if this is stating the bleeding obvious.

Here is a constant volume (500 contracts per bar) chart of this morning's Kospi. Plot second from top is EMA of the traded volume at ask minus that at bid. Third from top is a smoothed size showing in book at ask divided by total size showing in book (bid + ask). (totals of five levels on each side). Bottom plot is an experimental attempt to combine these (book and bid/ask delta) into a "market delta" (as in the product) type plot. Maybe it is a bit usefull.

At the annotated point just before the fall from 262.5, we see size on the ask in the book, but little inclination for buyers to meet it. We then see size on the ask falling off as the market begins to fall. There is a kind of divergence shown here and it is a very good clue to the impending fall. Why ? Because the market exists to facilitate trade and the passive sellers are not submitting non-marketable limit orders that they do not believe might be filled.

Notice also the "divergence" in the "order book delta" forming at the bottom of the down move accompanied by the disappearance of the aggressive sellers shown by the bid/ask delta.

Also notice that if the market doesn't move to size, it at least moves with size - until the demand shown in the bid/ask delta dries up.

I think there is some usefull stuff here, which is not to argue with gray1 that L2 is not needed to make money which undoubtedly is true. I am also not suggesting that other TA is also not valuable.

And before anybody asks, this my own charting software - there are ways of looking at DOM that do not involve a price ladder.

A little later in this mornings Kospi - putting it together with some TA. The upmove fails at about 262.5. The black line is VWAP. 265.5 - 265.6 is conventional resistance. area.

dcraig1 said:

It seems to me that it is highly improbable that flipping dominates the book. .

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Hi

Of course flipping does not dominate the book ,, This is an old argument,, If flipping dominated the book then it would yield to a random behavior of time series and even TA would be meaningless so would be L2 and we would all be wasting our time analyzing chart patterns, cycles, and so on ,,

TA assumes there is a pattern in supply and demand which can be modeled and hence an edge can be obtained,,

How ever and this is my main argument ,,, as the trading time frame in creases the edge increases and as a result L2 which has the lowest time frame will yield to such a tiny edge which does not justify the analysis what so ever..

People use L2 in 2 ways,, a) Entry b) Direction

I recommend to get the direction from much much higher time frame and totally ignore the lowest time frame which is L2 and use L2 for entry if you really have to ,,
ANALYSIS MUST COME FROM LONGER TIME FRAME . ANALYSING NOISY Level2 screen HAS NO FUTURE ..


I have how ever said and am saying it again ,,, if any of you make millions of year using L2 , or any other means Please don’t change your style,, KEEP USING WHAT WORKS FOR YOU ,,


Grey1

Grey1 said:

Hi


How ever and this is my main argument ,,, as the trading time frame in creases the edge increases and as a result L2 which has the lowest time frame will yield to such a tiny edge which does not justify the analysis what so ever..

People use L2 in 2 ways,, a) Entry b) Direction

I recommend to get the direction from much much higher time frame and totally ignore the lowest time frame which is L2 and use L2 for entry if you really have to ,,
ANALYSIS MUST COME FROM LONGER TIME FRAME . ANALYSING NOISY Level2 screen HAS NO FUTURE ..
Grey1

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This is really enlightening, have read so much about DOM trading and was getting frustrated at not being able to emulate some of the claims.
You have just reinforced the old adage, the trend is your friend, i.e established trend on longer time frames, Marcel Link has shown this in his excellent book "High Probability Trading"

I presume your remarks would apply to Time and Sales , and also trading with Market Delta.
Would appreciate your comments.

Joey,

Join the Technical Trader forum of this site and you will get a lot more about how Grey1 trades.


Paul

Trader333 said:

Joey,

Join the Technical Trader forum of this site and you will get a lot more about how Grey1 trades.


Paul

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Thanks Paul, how do I join the TT forum

In your own user control panel go to Group Memberships and you will find Technical Trader which you can request to join.


Paul

Joey

This is how I trade,, No Level 2 No T/S no volume analysis just pure up or down turn of cycles in market/sectpr/stock . I use break out technique in the direction of the cycle and vala..

I have out lined many different strategies on this BB which any one of them is enough to give traders the edge they need .

I am leaving PMI , BZH , LEN over night.. Is it not great on a strong market to be short and make $$,, yes you can if you are on the correct side of the market negative cycle ,,

Grey1


PS:-- All above stocks have near enough beta to index hence the same pos size, PMI , BZH , LEN in same sector hence a diversified trade and much easier entry . I was going to short TMA, CFC,MTG instead of aboves 3 but there was no down turn on the industry cycle hence chose the first lot. Not a perfect entry at all but does it matter NOPE because I can iron out the poor entry with my pos size. The advantage is I never bottom or top pick and I never miss the meat on the run .

Grey1 said:

Joey

This is how I trade,, No Level 2 No T/S no volume analysis just pure up or down turn of cycles in market/sectpr/stock . I use break out technique in the direction of the cycle and vala..

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Thanks Grey, that dispels all the false notions I had about missing out on an essential edge of not being able to read those moving prices and market limit orders etc on a DOM or via T/S. Your comments regarding the lowest time frame on the DOM really was so obvious but had never thought about it, it makes sound logic, to focus on higher time frame buying or selling pressures rather than being thrown around like a leaf in the wind watching DOM. Much obliged for that.
I only focus on Index futures, am afraid do not have the energy and time to branch out into stocks and other instruments

Grey1 said:

I am leaving PMI , BZH , LEN over night.. Is it not great on a strong market to be short and make $$,, yes you can if you are on the correct side of the market negative cycle ,,

.

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closed PMI,( down 12%) BHZ (down 10%) , LEN ( down 4%) with total of around 3500$ profit, What a spike yesterday and a great sell off to day ..

Joey.

Larger time frame such as daily , 60 min have great influence on much smaller time frames hence if you decided to go long on 1 min then it might help to see what 60 min time frame looks like

Grey1

Grey1 said:

Joey.
Larger time frame such as daily , 60 min have great influence on much smaller time frames hence if you decided to go long on 1 min then it might help to see what 60 min time frame looks like
Grey1

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Thanks Grey1, your remarks about the time frame on the DOM , t/s really drove the point home, don't think I would be too bothered about the moving prices once I have got my setup analysis right.

Joey said:

Thanks Grey1, your remarks about the time frame on the DOM , t/s really drove the point home, don't think I would be too bothered about the moving prices once I have got my setup analysis right.

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I think that Grey1 means the timeframe of the chart, not the DOM or T&S.
Glenn

Glenn said:

I think that Grey1 means the timeframe of the chart, not the DOM or T&S.
Glenn

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Thanks Glenn,

I meant the time frame which is reflected by Level II is the shortest.
Refer to POST 10 of Grey 1

"How ever and this is my main argument ,,, as the trading time frame in creases the edge increases and as a result L2 which has the lowest time frame will yield to such a tiny edge which does not justify the analysis what so ever.. "