Level 2 Screen Use is DEAD !

Ok, I have you attention.

I posted a thread on www.elitetrader.com trying to find out the effectiveness of Level 2 tyring to work out market makers actions. All I can get out of level 2 is liquidity and price spread.

http://www.elitetrader.com/vb/showthread.php?threadid=28998

Market Markers and Level 2, here is what they do to hide whats going on, and this level 2 is less use to use all. >>>
1) They use multiple identities to hide what going on
2) Most MM's prefer to use multiple ECN's now for anonymity.

But maybe you can still determine who is holding a stock at a price level, and who is trading against them.

Please comment, what do you think...

Naz you have been a regular commentator on the subject and also have a course on the matter, so what is your thoughts here ?

Cheers

Market makers have always used Ecn's at times to hide their identity.When people use it and dont take its benefits any further then of course then all they will see is liquidity and price spread.

I showed 75 people in January at a traders meeting a simple sample of level 2 set ups preceding chart moves.(No they aren't available on the web anywhere) I think people agreed that there was an edge there.When i demonstrate it Mon -Fri,it's always on the live market.

I know its not for everyone and i appreciate that,but i think a big point in how you use it is where someone learns it.Here is a quote from another t2w post on that exact point.

"In my opinion many brokerages are going to teach level 2 in a way that has traders scalping this is particularly prevelent in the US.Its in their interests.Many others will show it in a way that a salesman sells his goods.

In my opinion i learnt more about it it from how traders had adapted it to give their trading an edge.Put it together with t/a and see what is really happening to a chart pattern."

Here's what Chartman said when i showed it to him.

"He had slide shows of charts and the accompanying L2 screen to show the moves as they unfolded. When he says you see the move a minute before it happens on ANY chart is absolutely true. He knows what to look for, has his order in place, ready to hit the button..... This leaves no room for guesswork. Is it going to bounce? OR will it drop? He knows, while we're still guessing or gambling....."

Yes you can read the move before it happens,use different orders to capture the spread not pay it,manage the trade better.See what is really happening not what the chart likes you to think is happening.Exit the trades with better understanding.Use the direct access orders to your advantage.Trade and read momentum with skill.Of course you can also follow what the controlling market maker (the axe) is doing by colouring him in and watching his movements.Get instant fills.Know from looking at the liquidity on the screen if its the right stock to trade.Understand where your stops should truly be.Know if you should be taking the trade in the first place,Track the market away from the action at different levels to understand whats happening there.Know when people are truly buying and that is not many times where the advertising blurb would lead you to think is the case and end up using it like a trader and not a marketing executive."

Thx NAZ for your comments, So I guess you would say that level 2 setups prior to chart moves is not a dying art, and will remain a useful tool into the future.


Naza, if you belive the gossip around the NYSE that may be soon 100% direct access trading, I have read they may start with 300 stocks, so level 2 will have more importance if the above holds. (I also hope that they repeal the short sale rule.)

Digs,

Level 2 is the Nasdaq it cant be a dying art. All that happens is traders adapt it to use it in different ways. In the US many use and are taught the level 2 screen for scalping.Here in this country many of us use t/a.I've said before, put both things together and the UK trader really has got something.

UK stocks can be rather sedentary and pricey to trade,whilst Nasdaq stocks move,and the trading costs are very much lower.This in my opinion gives the UK trader a chance to use his/her t/a skills coupled with level 2 to really get an edge,trade cheaply and make a go of trading.

As you say about NYSE stocks.Level 2 direct access might become more important there.

I find Level II extremely important for deciding at what price to enter a trade. I was busy on Friday afternoon (with non trading related things), but I had the opportunity for an occasional trade and took one on RIMM. I wanted to go Long and using the Level II screen I was able to optimise my price entry. The market didnt even go 1c against me and I closed the trade for +88 points after only 5 minutes.

Without the Level II screen this would not have been possible and my use of it is primarily for reducing risk at entry.


Paul

RIMM I was there to, I got murdered !

Hence my investigation in level 2.

Re a comment made by Paul above

"Without the Level II screen this would not have been possible and my use of it is primarily for reducing risk at entry. "

Pauls profile suggests his main trade types are Day & Scalp. I am interested in whether anyone who swing trades finds the above comment still applicable. I have a view ,but I am interested if that is confirmed by others.

Cheers

Here is a comment from G. a trader sometimes on these boards who had already arranged to come and have a look whilst the market was live last week.These are his comments he has allowed me to post after just one trading move.

"Yes its true the charts showed one thing,the level 2 showed a different story.We traded using level 2 which proved to be completely correct!"

Level 2 Nasdaq is the best indicator t/a never had.Couple it with "pay no spread" direct access and are'nt these the tools a trader wants in their tool box?

To get to understand it you need a Nasdaq trader who uses it in a particular way to show you how it can be used on a live market, if trading conditions permit.

This live market action can also be attributed to training courses.If your course instructor has something to teach is he willing to show you on live markets?

l2 gives an entry and tells how the particular stock is trading..its a microscope not a trend finder

It is only a microscopic picture if the trader allows himself to use it in this way.Reading the longer story and putting it together with t/a principals gives you the trend.The stock i talked about above ran $1.50 in a new trend after i read the story correctly.

In my course i have a level 2 story (IIJI) which finds the trend and tracks it for 4 hours,giving a lovely swing trade.

I also have level 2 shots of another story that is a trend finder for a $4 evening move.

The bigger picture is where the profits are and when i trade the US afternoon, (UK evening) move thats exactly how i'm using it.

Of course when i first got hold of it i used it as a scalper does and when i have to i still do.But the bigger profits are using as a trend finder for the longer moves.

Reading the longer story and putting it together with t/a principals gives you the trend.

Click to expand...

Yes, and it takes many years of experience to attain this level. You make it sound too easy Naz when it is most definitely not but I will keep plugging away trying to improve over time. Like wine really !

Level 2 trading is not dead if you scalp (go for small movements). TherLevel 2 screen is still relevant and helpful for playing very short term moves.

For me Level II is still highly relevant for reducing risk at market entry.


Paul

Paul (and anyone else who may know)

I'm currently thinking about opening an account with IB for DA trading.

- I don't have the $25 to be a PDT player and only intend to trade 3 times a week, looking for high probability trades as and when (hopefully!!)

- does the IB platform offer L2 and what's the minimum amount needed to open this sort of account.

Thanks

EK

Yes IB do offer Level II but it does not include ECN quotes and is therefore of no use in my view. It would be as easy to take out a Level II subscription with someone like IQ feed via Quotetracker and is extremely good. I am not sure what the minimum balance is to open a non PDT account is but it should be on the IB website.


Paul

I'm currently having a look at direct access elite for L2 Nasdaq. Quite impressed and has as been mentioned more practical than using IB. There is a $100 a month fee for software though. Any views on DAE and how it compares to others, say Tradestation.

Everything you can ever need you'll find in an order book. The story of the tape tells all.

I've got level II and T&S from QCharts. I'm still at the point that it looks like nothing but random noise... it will take years surely to become proficient at using Level II effectively.. identifying the axe, reading the trend etc.

What are the best books on Level II?

Hi People !

I am writing from germany and I´d like to ask which Broker and which software are you using ?
What is the best for level II T & S ?

esignal? realtick?
J-trader ? X-Trader??

Thank you for answering

Sincerely

esignal? realtick?

I´d like to scalp the DAX and emini Nasdaq :cheesy: