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Capt_Nemo

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Capt_Nemo

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Friday, 12/21/2001 5:12:40 PM

Friday, December 21, 2001 5:12:40 PM

Post# of 3263
We are going to put some of this level 2 info in the I-box, but I just couldn't resist posting some of it now,,,,For traders for dummies like myself,haaa Learnin all the time..



Level II Training, DayTrading Education, and Information

WHAT IS LEVEL II? - A Lesson
You will see this term in chat rooms and message boards daily. This is an optional quote system available from some on line brokers, usually at an additional charge or free if you reach a certain number of trades in a given time.

These quotes allow you to see the depth and movement of a stock as it trades. Along with time, size, last, bid and ask, you also see all of the market makers that are buying and selling in the quoted security and the price that they are bidding and asking. This is very helpful in determining the way a stock price will likely move.

You will often see someone ask for a level 2 quote and what is answered is something that looks like this: .30 x .31 3x2. What this means is that the market maker with the best bid, or buy price, is at .30 and the market maker with the best ask, or sell price is at .31. The 3x2 is the depth of the market. The '3' means that there are 3 market makers willing to pay the .30 price for the stock. The 'x' means by and the '2' means there are 2 market makers willing to sell at the .31 price.

These are very important numbers and can give you an idea which way a stock price may go. If there is a number of market makers at the same bid price this is considered support at the bid and is a bullish sign. It tells you they feel that the price is not going to be lower in the current market and they will line up at what is considered the 'going rate'.

Few market makers lined up on the bid and this can be a bearish sign. If the price starts to drop it will drop faster with no support as the market makers are already sitting at lower prices when it starts to move.

Conversely having several market makers all at the same ask price is considered a 'WALL' or resistance. When you have more market makers lined up at the same ask price it will take more volume to push the price high because there are more sellers willing to sell at the quoted price.

Most level 2 quotes are 'live'. That is you will see the prices change instantly as the market makers raise or lower the prices to meet the market. More buys and you will see a lot of activity on the ASK side of the screen as they raise the prices and line up based on what they are willing to sell into the market at. The same will happen on the bid side. If the price is rising the bid side of the screen will change to reflect the new bid prices and market maker line up.

In a fast moving stock price, either up or down, this all happens in a matter of seconds and you will need to learn to read the flow of the market in order to take advantage of the information in front of you. This is something that entire books have been written on and it will take time and experience before you will be able to 'see' which way the market is going to move.

Level 2, in my opinion, is a tool of the trade. And if you are going to work in this trade you will need the tools and level 2 quotes is a must have that can easily pay for itself in just one successful trade.
- Professor Penny



Level 2 - From Penny Guide
The improved availability and affordability of quotation systems providing 'Level 2' access has allowed traders and investors to make increasing use of this valuable feature when trading NASDAQ and OTCBB securities. Many traders find the extra detail provided by Level 2 systems an invaluable resource in their drive to maximize profits and limit losses. Level 2 is now considered a must for serious traders looking to profit from short-term price movements.

The advantage of Level 2 is that it shows the trader not only what the best bid and ask (Level 1) but also provides additional information about the depth of the market for a particular security. In other words, Level 2 shows the position of all the MMs.

Level 2 usually displays the bid side market makers on the left side, with their bid size, the time the quotation was entered, the quotation itself, and the AXE, which shows how many times the market maker was on the best bid. The same is true on the ask side. Additionally, Level 2 systems usually have a Time and Sales window that shows individual trades in near real time with the size of the trade and the price the trade was executed at.

The basic way to interpret this information is to see which side has more MMs lined up, the bid side or the ask side, and also to see whether trades are going through on the bid (a sell) or the ask (a buy).

When Level 2 shows a large number of MMs stacked on the bid side and lesser number stacked on the ask side with the majority of trades being executed at the ask the normal inclination is to believe the ask or bid will uptick. The problem with Level 2 is that as more and more traders use it to assist them in determining their entry and exit points, the MMs also use it to trap more and more traders. As a trader in the OTCBB market, I have witnessed these tactics on a daily basis.

Traders often wonder how a few sells can drop the price so much but at the bottom they can absorb so many sells and not move the bid. Now they start the cycle all over again. The MMs always buy low and sell high, and a stock will always pull back so they can buy back the shares they shorted, keep in mind the laws of supply and demand don’t always apply in the OTCBB world.

Market makers will also manipulate the Time and Sales window by masking buys and sells. They achieve this by showing buys at the bid as sells, this hopefully will induce more selling or showing sells at the ask as buys, this hopefully will induce more buying before the price drops. I have witnessed this often as I buy or sell a stock.

The important thing to remember is that Level 2 is a great tool, indispensable for a short term trader, but Level 2 only shows the information that the market makers want you to see.

Giando Argentina is an experienced trader focusing on the OTCBB market.



Characteristics of Market Makers: Hard Right Edge - Wizards Den
1) Market maker orders are not always 'real'. In active stocks, you will rarely get a fill against a market maker at the inside bid or ask unless the stock is about to quickly go in the adverse direction. This is due to the 17 second rule.

2) Market makers are only required to fill a single 100 share order at their price every 17 seconds. As a result, when a market maker is displaying a 100 share quote and is the sole quote at the inside ask, they need only fill 400 shares per minute in order to clog up the stock movement and remain at their current quote. During this time, there may be 10-100+ orders sent to them totaling 100,000+ shares to buy stock from them at their quoted price. However, the market maker need only fill 100 shares every 17 seconds. At any time, he/she is then able to withdraw their quote and not fill any additional orders. Therefore, don't count on getting filled from them!

3) Size. Market makers can display any size they want, down to as little as 100 shares. As a result, they will often post this minimum size, regardless of their true size. From their posted size, you have no way to determine if they are really only prepared to sell 100 shares, or 100,000 shares at their price.



The Hard Right Edge
What trading strategies work with a Level II screen? Mark Seleznov
I use Level 2 Market Maker screens primarily as a way to know how to execute trade routes, not to tell me if a stock is going up or down. Several years ago, the information displayed on Level 2 Market Maker screen was much more reliable than they are today. Most of the time, the information on Market Makers is unreliable. This is particularly true of some of your more active stocks like DELL, INTC, MSFT and CSCO.

I tell people to think about Level 2 Market Maker postings as a poker game. Do you show your hand to your opponents in poker? Of course you do not. Why would the Market Makers be honest about the amount of stock they want to buy or sell? Many times you will see one Market Maker just sit on the Bid advertising that he has 1,000 shares to buy and he is hit by everyone and just keeps buying. Another time, you will see another Market Maker just sitting on the offer while prints of thousands go off. He is selling not only on the SOES system, but also selling thousands of shares on Selectnet or other private systems.

The only truth is in the charts and the time and sales. The chart shows you the reality of what buying and selling is actually going on. The trades show the actual trades that took place. The Level 2 Market Marker posting is a story that someone wants to paint for you to see.

Try it tomorrow in Dell. How many times will you see 10-15 Market Makers on the offer and think, WOW there must be resistance at that level. Only to watch the stock trade thousands and thousands of shares through that price and run a point higher. Or see 15 Market Makers bidding at the whole number, only to see it break down and run a point lower.

A chart is a chart. Trading is trading. Don't count on Level 2 screens to tell you the whole story. Learn to read charts, technical analysis, trading and risk management. In my opinion, these are the keys to successful trading. These are the keys regardless if you are trading wheat, gold, options, T-Bonds, DELL, or AMZN. SOES, ECN's, and Level 2 is a way to execute trades, Level 2 is not a system of trading.



Historical Montage Simulator
Have you ever wanted to learn more about the Nasdaq Level II screens and the Market Maker Movements that lead to potentially large changes in a stock price from day to day? Have you ever traded live and wanted to gain further insight into what went wrong (or even what went right!) in a particular trading day? Now that power is available to you through this incredible service. You can analyze market data over and over again to identify every nuance of market action in a particular stock.



The Nasdaq Stock Market is not the U.S. over-the-counter (OTC) market, nor is it the same as the OTC Bulletin Board® (OTCBB) quotation system. The OTCBB is a quotation system for subscribers - not an issuer service. While issuers have no business relationship with either Nasdaq or Amex, the OTCBB is also regulated by the NASD. The OTCBB displays real-time quotes, last-sale prices, and volume information for more than 6,500 securities. The OTCBB includes those stocks not listed on Nasdaq, Amex or any other national stock market. It also includes foreign equity issues, warrants, units, American Depositary Receipts (ADRs), and Direct Participation Programs (DPPs).

In 1971, Nasdaq was created to automate and trade OTC securities. Prior to that, dealer quotations were disseminated by paper copy only. These copies were printed on pink-colored paper, hence the designation of OTC securities as "pink sheet" stocks. The "Pink Sheets" are still published weekly by the National Quotation Bureau. In addition, an electronic version of the Pink Sheets is updated once a day and disseminated over market data vendor terminals.





*Rick*---The very best of this holiday season to you all and yours.....!!!!!!

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