bigdoglee007

Can someone explain how to effectively use Level II quotes and spreads? Ive been reading up on them but Im still not clear on how to use them and what to look for when trading.

Ektrader

Worthless!! focus your studies on things that will actually help you like Support and resistance and volume (if trading stocks).

Happy Learning

Ektrader

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BrendanEgan88

I wouldn't go as far to say level 2 is worthless, but you do need to understand nothing on it is definite (think of it as another indicator--use it for a verification but not as a sole tool in your entries and exits). I use level 2 information sometimes but I never really use it as a reason to enter or exit a trade.

Basically level two information has not yet occurred so it is constantly changing and there are all kinds of games that go on in level 2. I actually have a video explaining this if you go to my trading journal (the link is below this post).

The reason most people don't like level two is because market makers can always cancel their bids or offers. So for example, if we see stock XYZ at 99.99 and there is an offer at 100.00 for 50,000 shares, the market maker is putting this offer out there to make the stock look weak at this level and try and make price pullback, however the market maker may remove their offer at any time so the stock isn't really "weak" so to speak.

Hope this helps.

bigdoglee007

Brendan, EKTrader thanks for the insight. TA is my primary tool but Ive seen Level 2 quotes mentioned allot in articles. I have noticed that they can give you a slight heads-up with regard to the direction a stock is going. But like you said Brendan market makers can pull their bids at any time.

Brendan, I'll checkout your video on all this.

Thanks again fellas!

BrendanEgan88

You're very welcome. Also in a few of my live trading videos you will see me use the Level 2 screen to time my exact entry on some trades--this can be risky at times if there are bids or offers that are not showing up on level 2 but most of the time at a whole number it works fairly well.

StockJake

When you are just starting out Ektrader is absolutely right when he says you should focus on support, resistance and volume. I'd also add a healthy dose of chart patterns and candle stick patterns.

see here:
Chart Patterns - InformedTrades
Candlestick Patterns - InformedTrades

After you are comfortable with those items i would integrate time and sales. And finally after that, i'd start looking at Level 2.

Level 2 can be helpful but only after your seeing the bigger picture. Watching Level 2 too soon is like zooming in to look at a leaf and missing the whole tree.

When trading futures, i have NOT found level2 info to be very helpful.


-jake

Ektrader

you make a great point Jake an you too Brendan. I was speaking from a Futures trading biased. That being said..... Use level II with extreme prejudice.

Ektrader

__________________
First you will hate it, then you will debate it, but eventually you will know it as truth!.
For LIVE Trades, setups, market insight, and other interesting stuff. Visit my video blog:"The MIXTAPE"

StockJake

Ha ha Ek, i love that quote.

I think of Level II as my compulsive liar friend from Las Vegas....


-jake

BrendanEgan88

This is true. I would say 90% of the time it fails but when used with other tools it can be helpful at times. Just make sure you don't rely on it too heavily or take the info it provides as factual because it is not.

FlowTrading

Never found much benefit with it......

I put more weight on traded volume rather than just "implied" supply or demand.



Good Luck and Trade Well.....
Flow