demise of Level II plus level 3

[oildaytrader]

http://www.trade2win.com/boards/lev...000-month-trading-us-stocks-9.html#post553174

Do you guys really believe level 2 gives you any clue about the support and resistance?

In a new era of high frequency and automated algo trading ,can level 2 really work?

Are there any conclusive back tests , that trading on level 2 information does give you an edge?

Have the big players suddenly turned naive to hand you cash in your hand by playing strip poker?These big players are not going to show you their card , are they?They are in and out of trades faster than a whore's drawers.

Personally I think level 2 is "trading an illusion of pissing in the wind".Anybody using it does not make money from trading it, but is probably using it to sell Madoff signals on Nasdaq stocks,Madoff mentoring, madoff courses and Madoff trading.

In a dynamic market , that is rigged against the ordinary trader ,level 2 info has little merit.It is a bit like using leading indicators, none of which are ever proven to be profitable.

Please show me some proof.

http://www.ehow.com/video_4790909_the-difference-between-level-level.html

O D T

 

[Trader333]

Are there any conclusive back tests , that trading on level 2 information does give you an edge?

How is it is even remotely possible to back test Level II ? as such your request cannot be answered.


Paul

 

[donaldduke]

Level II was all the rage 10 years ago.. it lasted a few years after that.

A few snake oil vendors still promote it.

 

[Glenn]

Courtesy of Mr Geko - see Spoofing and DOM.
www.trade2win.com/boards/level-ii/37726-levelii-vs-times-sales.html#post492010

Glenn

 

[oildaytrader]

Courtesy of Mr Geko - see Spoofing and DOM.
www.trade2win.com/boards/level-ii/37726-levelii-vs-times-sales.html#post492010

Glenn

So if there is a lot of spoofing ,level 2 fails,level 2 makes money for level 2 course sellers and wizards?

 

[Glenn]

So if there is a lot of spoofing ,level 2 fails,level 2 makes money for level 2 course sellers and wizards?

Just like 99% of what's out there yes.
'Picks and Shovels', as in California Gold Rush etc. That's where the reliable money is.
Who cares whether the Gold prospectors find anything ?
Caveat emptor.
Glenn

 

[dcraig1]

How is it is even remotely possible to back test Level II ? as such your request cannot be answered.


Paul

Of course it is possible. Just because the likes of trade station can't do it, doesn't mean it's not possible.

If you can represent something as time series (or vectors(s) of time series) you can test it.

 

[Trader333]

Of course it is possible. Just because the likes of trade station can't do it, doesn't mean it's not possible.

If you can represent something as time series (or vectors(s) of time series) you can test it.

I stand corrected, do you know where this type of data can be obtained and how it could be used on a long term backtest ?


Paul

 

[dcraig1]

I stand corrected, do you know where this type of data can be obtained and how it could be used on a long term backtest ?


Paul

I had some plans to do this, but it just never seems to get done

If you have a data feed with API with Level II support you can record L2 history into a database or whatever. You can do it with TWS API, but it is a bit lacking because it doesn't have explicit cancel events and you have to match against T&S or incremental changes in volume to try to work out what is going on. There is also no definitive way of telling whether a trade execution went through the book or was just a a report of a block trade. There are plenty of these in the week before futures rollover.

The now defunct OpenTick L2 API was actually pretty good in this respect with none of these problems. Shame it is no more. I've got DTN IQ at the moment but haven't even looked at the L2 API.

No matter what API you use, the data is bound to be really noisy. Maybe some signal processing techniques might be of some use. I dunno.

Attached oldish chart of DAX. Bottom plot shows which side of book size is on (all levels). 250 contracts per bar

 

[oildaytrader]

If markets are moving fast ,futures are moving and orders related to futures prices are moving fast,the level 2 could be meaningless.

If liquidity is extremely low or extremely high how can this level 2 info be any good?

 

[dcraig1]

If markets are moving fast ,futures are moving and orders related to futures prices are moving fast,the level 2 could be meaningless.

If liquidity is extremely low or extremely high how can this level 2 info be any good?

Perfectly valid questions, but the problem I always have with these discussions is that nobody really knows because nobody systematically studies them. Or rather those that have aren't telling.

I really fail to see how one can do it systematically by staring at a DOM ladder. If somebody can, they have my respect and I freely acknowledge that their powers of observation (not to mention patience) are a lot better than mine.

I'd also suggest that what goes on in order book varies from instrument to instrument. Stock index futures being quite different to stocks and also different to currency futures.

 

[oildaytrader]

Wall street relies heavily on insider information .How does that play into level 2 ?

 

[oildaytrader]

Here is my final word on level !!

It is an illusion sold by snake oil salesmen i.e signal sellers, training educators,course sellers and others to impress you ,with the idea they know something special called level 2.It is not proven to give traders an edge, if anything it leads to confusion and delusion and may take traders out of really good trades much earlier, by reading spoofing, illiquidity,hidden orders,excess liquidity,noise,insider deals , high frequency trades and trades rigged against the ordinary trader.

If level !! is 50% effective , then just do a coin toss and save yourself mental energy and time.Use it wise to monitor sectors and indexes ,intermarket companies (companies the stock does business with ) and currencies(if earnings are affected by foreign earnings), reading these will give you better results.

Don't let the snake oil salesmen lead you astray.

 

[deanz]

All fair opinions....... so I'll add mine, just because someone can not make money with level 2, does not make it unusable. Infact the more people that say it is useless the more I am intrigued to dig deeper and find out for myself, remember the majority are wrong in this game.

The best pure level 2 reader I have come across is this guy:
http://www.elitetrader.com/vb/search.php?s=&action=showresults&searchid=3208180

He only has 41 post so it's not hard to find the gems, but yes he does make it sound like hard work, in a game where most want it easy.

.