Level II doubts

[mxmauro]

Hi,

I'm a beginner in L2 trading and have some doubts.

What is the level 2 data that providers like IB, TDA and eSignal bring to us?

Some people is able to see only 5/10 ask and bid prices but cannot see who are the market makers participants inside each order... for e.g. you see an ask for 200 shares at some price but you don't know if 150 of them are from one MM and 50 are from other.

Other people (i assume because it is a free demo) can see a more real depth but from only one or two participants.

Also, I want to trade with NYSE and NASDAQ quotes. Is it enugh to be suscribed into NYSE full book depth and NASDAQ TotalView in order to see a decent depth (about 10 items) and ALL the participants that forms each bid/ask item?

Best regads,
Mauro.

 

[The Expert]

What stocks are you trading

What is your target

What is your time-frame

What is your process

What is your risk per trade in $

What are your expectations

WHY do you think you need Lev II to make money trading:?:

TE

 

[mxmauro]

I think that L2 shows the intention of people and market makers (and their fake intentions) and can help to I'm doing.

I'm not trading now. I'm making studies and test from minute-by-minute 3-year historical data of many enterprises but for now I'm focused in WFC, BAC and some others financial companies.

The problem is that free L2 services gives me limited data. E.g. tdameritrade shows only the top of book... Other providers like bats shows (in their webpage) what is going on via bats but not orders routed by other ecn's.

So I want to ensure that, if I acquire InteractiveBrokers services (the corresponding packages they offer) I will see the full L2 book of NYSE and NASDAQ companies. And what I mean with "full" is that I want to see the complete book... who is asking or making a bid at what price... volume... routing... more info... better.

Greetings, Mauro.

 

[wackypete2]

You will never see the complete book. There are volumes of hidden orders and dark pools that never show up in limit order books or Level2. For example a broker/dealer can have an order to sell 2000 shares but sets it up to show only 100 shares at a time on the level2 offer. You will never know their true intentions or the true liquidity available at that level. Level2 is so full of trickery, gimicks, hidden orders, front running (flash orders) that it makes a very poor indicator of liquidity, volume, or strength of market.

I know this wasn't exactly what you were asking but I thought the information might be helpful.

Peter

 

[mxmauro]

Hi Peter,

I know about hidden orders and dark pools, but lets talk about the rest... the data that normal people like us should be able to get in realtime.

Imagine I suscribe to IB's Nasdaq totalview and Nyse Full depth book packages to get almost all L2 data.

If I open NinjaTrader and began to watch realtime L2 data, I think that I should see data like this image:

http://www.trade2win.com/boards/attachments/level-ii/7824d1087400156-bid-higher-than-ask-cybx.jpg

Why am I asking this question? Because I saw some limited services providing only the top of book or a more complete L2 data but with some MM and ECN's missing (e.g., orders coming only from bats or from nasdaq and once I saw a system not showing orders for a nasdaq company that were being routed via nyse)

Best regards,
Mauro.

 

[Tradefor Work]

You will never see the complete book. There are volumes of hidden orders and dark pools that never show up in limit order books or Level2. For example a broker/dealer can have an order to sell 2000 shares but sets it up to show only 100 shares at a time on the level2 offer. You will never know their true intentions or the true liquidity available at that level. Level2 is so full of trickery, gimicks, hidden orders, front running (flash orders) that it makes a very poor indicator of liquidity, volume, or strength of market.

I know this wasn't exactly what you were asking but I thought the information might be helpful.

Peter

So does that make manually executing and evaluating L2 almost useless? Unless you have an algo written to trade based off of very minute changes in the order flow?

 

[wackypete2]

So does that make manually executing and evaluating L2 almost useless? Unless you have an algo written to trade based off of very minute changes in the order flow?

You have to be a hawk, staring at the L2 screen constantly. You will either burn out, miss what you were looking for when you sneezed, or the numbers will all seem to blend together as you lose focus. And that's assuming you even know what you are doing in the first place. Experienced traders who have used L2 for ages have adapted and can make it work or moved on to other methods. I don't want to discourage anyone from finding their edge in the market, but in all honesty, there are plenty of easier ways to profit than using L2.

Peter

 

[trendmaker]

You have to be a hawk, staring at the L2 screen constantly. You will either burn out, miss what you were looking for when you sneezed, or the numbers will all seem to blend together as you lose focus. And that's assuming you even know what you are doing in the first place. Experienced traders who have used L2 for ages have adapted and can make it work or moved on to other methods. I don't want to discourage anyone from finding their edge in the market, but in all honesty, there are plenty of easier ways to profit than using L2.

Peter

smells like wackypete2 cant see the gorilla

 

[DionysusToast]

L2/T&S/DOM are tools of misdirection.

Some people will tell you they are of no use. On the other hand, traders do spoof the DOM and tools like Xtrader help them in that endeavour. The spoofing is done to get suckers to place bets in the wrong direction. It does work, suckers are suckered in every day.

So - is it of use ? Sure - but only if you aren't a sucker and understand at least some of the games that are played.

Also - this idea that you need to watch L2/DOM/T&S all day to get use from it is not true. It is also not true that it is only a scalpers tool.

Let's say for instance, that you use pivots. If the price is not near a pivot point, there's not much for you to do. As it approaches your pivot, the L2/DOM/T&S can be used to support decisions you are making around those areas.

 

[trendmaker]

L2/T&S/DOM are tools of misdirection.

Some people will tell you they are of no use. On the other hand, traders do spoof the DOM and tools like Xtrader help them in that endeavour. The spoofing is done to get suckers to place bets in the wrong direction. It does work, suckers are suckered in every day.

So - is it of use ? Sure - but only if you aren't a sucker and understand at least some of the games that are played.

Also - this idea that you need to watch L2/DOM/T&S all day to get use from it is not true. It is also not true that it is only a scalpers tool.

Let's say for instance, that you use pivots. If the price is not near a pivot point, there's not much for you to do. As it approaches your pivot, the L2/DOM/T&S can be used to support decisions you are making around those areas.

seems to me there is too much focus on price and not much on volume .... L2 and time and sales is the win button

 

[tanalysis]

For symbols which have large daily turnover (e.g. MSFT, GOOG etc) data you will see in L2 will not help you much. Most vendors will give you only 5 levels in L2 and for those symbols data will be changed with very high frequency (you will see one picture in this moment and after just few seconds it will be completely changed).

For markets or symbols with lower trading frequency it could be good tool.