Hi Pjethwani,

Welcome to the community. These are good questions that I think a lot of other people have as well. Once we are done with our free forex trading course we are going to be doing a free stock trading course as well which will go in depth into exactly the questions you have asked below plus a lot more.

So with this in mind I have posted some brief answers for you below and given you some links that you can check out for additional information in the meantime.

You are correct that price rises with rising demand. What you have to keep in mind however is that the market makers and other participants who are posting their bids and offers on the level II screens are not going to simply come right out and show you what they are doing as this would allow you and other traders to take advantage of this at their expense.

So with this in mind they are going to do their best to hide their intentions so things are not going to be as straightforward as being able to sell when it seems that there are more offers in the market and vice versa.

Traders who trade off of the level two quote screens will get to know the market makers there and try and figure out patterns from watching them day in and day out that they can benefit from.

There are 3 participants that show up on the level II screen:

Market Makers, ECN's, and Wholesale Order Flow firms. For more information on this see the link below:

Introduction to Level II (level 2, L2, L II, Lii) - HotStockMarket Message Boards - Penny Stocks | Stock Tips

Remember when a trader sells they make money when the price goes down so if you sell at 43.010 when there is a bid at 43.13 then you are giving up $.12 for no reason.

Hope that helps. Here are some links to additional reading on these topics that I highly recommend from Investopedia.

Electronic Trading: Introduction

Introduction To Level II Quotes

How To Work Around A Market Maker's Tricks

Best Regards,
Dave

Thanks Dave,

I look forward to your Stock Market tutorials