Level 2 And The UK User

richarjl

Junior member
11 0
I have used level 11 in the UK spreadbetting UK ftse-100 stocks etc. I am new to the site but it seems that most of the threads are regarding level 11 tailored for US use. The level 11 platform that I use is supplied by ADVFN. I would be interested to hear from anyone who trades the UK via the order book with regards the use of the tool. I do not get to talk to traders that frequently about the book as only one other trader I know uses it. I know a lot of spreadbetters etc who have not used it or have not even heard of it.

The following point interest me.

Do people use level 11 for day trading only?

Does level 11 provide any real edge in the uk markets?

How do they interpret the book?

What tactics are people using?

What problems do they encounter in trading via the order book i.e confusing signals.
 

richarjl

Junior member
11 0
I am a bit puzzled why I did not get any replies.

Would anyone like to discuss whether the use of SETS level 11 is that helpful to them?
 

JTrader

Guest
5,741 506
Hi richarjl

I can only imagine level 2 data being of any use to intraday traders only.

I too traded UK FTSE100 SETS stocks with the aid of level 2 data alongside my charts. I found it useful for providing peace of mind. I could see support and resistance levels and could see the depth of these levels and whether they were in danger of collapsing.

Level 2 can be interpreted and used in different ways, whether you are a spreadbetter or trade through a Direct Market Access broker such as GNItouch.com

Generally, I looked at the volume on the bid and offer sides of the book. If there were twice as many buy orders as sell orders, the stock is in demand and it is likely that the price will rise. If there are twice as many sell orders as buy orders it is likely that the price will fall.

However, I also payed closer attention to the dozen or so orders (and the level of associated volume) nearest to the current spread, because there can be large orders some way down the order book that are not likely to be triggered for some time. But, if you take them into consideration when looking at the overall buy orders and sell orders volume, this can paint a misleading picture.

I do not know much about advanced scalping techniuies associated with level 2 data I'm afraid.

I did try ADVFN level 2 data - and didn't like the layout, as you cannot see that many of the orders on the book wihout having to scroll down. However, it was the cheapest that I tried. I preferred thew layout of moneyam.com's level 2 data, as you could see more orders without having to scroll through them, the appearance of the order book is customisable in terms of colour etc., and it is priced nearly as competitively as ADVFN.

I also tries proquote.net's level 2 data. Although good, it was hugely overpriced, and I actually preferred moneyam.

HTH.
 

JTrader

Guest
5,741 506
PS. as you suggest, level 2 can be confusing also. There can be times when there are 3* as many buyers as sellers for example - a clear suggestion perhaps that the price should rise - yet the price does not rise and contradicts what you believe should happen. Such instances may be more prevalent around areas of support or resistance.
 

richarjl

Junior member
11 0
Thanks for the reply. I have never worked in a city trading environment so all the experience that I gain is via books etc and from my own experiences trading with my own capital. I only get to speak to one or two other traders and they are in the same situation as me. When I subscribed to LEVEL 11 data I did not know much about it's use or purpose but it seemed a step worth taking in the overall learning process. Once I got access to the LEVEL 11 data I had no one to speak to for advice about how to use it and more importantly I had no one to advise me whether it's worth the monthly subscription. So there I was sitting in front of the screen and thinking well what's this information telling me. I would then formulate a set of ideas about what the movements that were going on with the volume and price etc mean and how would I trade using this information. The question I kept asking myself was ' Am I making the correct observations about the market action?' . What I really did not want to do was to formulate an understanding that was essentially wrong. This point is really the basis of my thread. Am I reading the book in the manner that a trader in the city would use it. Am I approaching the use of the data in a way that a professional trader would.

So to develop the thread further I'll recount examples of situations in which I have traded via the information presented to me whilst watching the level 11 data. It would be great if others would also share their experiences and interpretations etc. If someone replied that that's not the way to use it then this thread would be very worthwhile, for me and I suspect others. The other spin off would be a greater insight into what the book can actually tell us in a much broader sense.

A few days ago I was looking to enter a trade on BP. On that particular day the stock was declining all morning quite steadily. I was aware of 2 pieces of negative news which could have been resulting in this decline. The stock had also been declining steadily for about 2 weeks since hitting a high of about 522. The charts indicated fairly strong support at about 476 - 480 over a 4 month period. The charts also indicated support a about 484. over the last 2 months. As the stock declined there was always more buy orders than sell orders in the ratio of 2:1. There was not any visible signs of support indicated by large volume on any one set of bid side numbers. I watched the bid and offer sides of the book to see which side was getting all the action. It was all on the bid with a lot less buying against the offer. As the price declined in it's steady manner the trades that were on the buy side were eventually traded against. This I interpreted as a good sign. It suggested that the news Was not that negative and people were happy to pick the stock up as it declined. What would have worried me was if the orders on the buy side were being pulled and the price was falling a lot faster.

As the price approached 485 things suddenly changed. The rate of decline eased and the stock began to level off. The volume on the buy side increased sharply and it was all concentrated around 484 - 485. Big volume appeared on the book. This gave me the impression that the price would experience support at this point if the demand as indicated could outweigh the supply. What was more interesting was whether the trades that were indicated on the buy side at these numbers were added to as they were matched with a seller and more importantly to me were these spoof orders that were there to create the impression of support, only to be pulled at the last moment. They were not in fact pulled but matched with sellers. This was good enough for me as an example of firm enough support for me to enter a trade. By this time the price was level and moving up slightly. Not long after, all the action was on the offer side and the price was rising. The ratio of buy to sell side volume was about 3:1. In went the trade at 485.5. A few hours later I could enter a break even stop with a few pence to spare.

The above is an example of how I interpreted the action using level 11 and eventually placed a trade. The trade was successful.

The question is ' Is this what those in the city who do this as a profession use the book for?'.

If any one would share similar trading experiences/tactics regarding the order book then I am quite willing to do so further.
 
Last edited:

Racer

Senior member
2,666 30
Generally, I looked at the volume on the bid and offer sides of the book. If there were twice as many buy orders as sell orders, the stock is in demand and it is likely that the price will rise. If there are twice as many sell orders as buy orders it is likely that the price will fall.

However, I also payed closer attention to the dozen or so orders (and the level of associated volume) nearest to the current spread, because there can be large orders some way down the order book that are not likely to be triggered for some time. But, if you take them into consideration when looking at the overall buy orders and sell orders volume, this can paint a misleading picture.

It is very easy to weigh the book and give a bias when there isn't one for thinly traded stocks..

I know, it is easy to do ;)
 

JTrader

Guest
5,741 506
Hi richarjl

some traders also make use of level 2 data trading through direct market access brokers, where they can buy a stock on the bid price and look to sell it on the offer price - making a profit within the spread. Whereas normally through spreadbetting for exampe, you would buy on the offer price and sell on the bid price.

if you look under 'discussion' - 'search for a post' - then type 'level' in the search field - and select 'search in titles only' you will also find other useful discussions on the use of level 2 data that may be of interest.

Thanks

jtrader.
 

Captain Haddock

Active member
122 5
Hi richarj

I have been trading UK sets for approx 3 years focusing on Level 2 to make short term trades/scalps. (I uses ADVFN's platform)

Level 2 is crucial if you want to scalp the market and the way the order book behaves is very stock specific. Some books such as VOD do not give nearly as much information as a smaller stock such as ARM/RSA, and each must be treated differently when interpreting the screen.

I wouldn't pay much attention to the total volume on each side, because as previously mentioned, this can be easily skewed to mislead. Although you can drop down the buy/sell orders box and select 1/2% to give you a better picture without wild orders.

To get a good understanding I would suggest watching 3 or 4 different priced stocks on the level 2 screen when the markets moving. EG: OOM/AVZ/LLOY/RBS, these will give you an idea of how each behaves and the size of orders that flow through.

I personally prefer to scalp stocks around the pound price level. This is because the resistance and support are much clearer due to the 0.25p increment moves and I find the order book's easier to read. Iceberg orders are easier to spot, computer placed trades are a giveaway on the thinner stocks too.

Take ARM as an example yesterday, the selling was pretty much relentless all the way to the close, large icebergs orders were being placed directly onto the offer, they kept the selling in check though, rarely did they sweep the bid leaving only a few buyers.

If you're looking to buy that sort of stock for a bounce, you need to see the bid being cleared leaving only a few orders left, this along with a spike down in the price. Then immediately I want to see big orders coming on the bid, maybe not bidding top price but showing some strength, I want to see more of these orders building up, then I'll hit the offer, forget about trying to bid for stock after a clear out like that you'll never get it (unless your wrong about the trade, then u dont want it anyway!). Ideally you'll want to see orders being pulled from the offer at various prices levels now and the bid building. If I see this and I see buyers hitting the offer in size, I'll quite often hit the bid again and double my position, set my stop just below the last low, and sit tight to see if Im right. At this point, the buyers will have driven the price up a bit and you will showing a small profit. This is the crucial moment. If large sell orders start to come onto the offer and are not immediately snapped up by buying, sell your position. This is an ominous sign and I want to see the sellers finished and the buyers hungry for stock, if thats not the case, bank the scalpers profit and get a buy ticket ready in case you want to get back in.

(This scenario after some heavy selling is showing signs that the seller has finished his wave, they tend to get impatient when they have only a few shares left to fill and that is why you will quite often see the bid being wiped to finish the order.)

The above is all IMO and DYOR!!!!!
 
Last edited:

richarjl

Junior member
11 0
Captain Haddock said:
Hi richarj

I have been trading UK sets for approx 3 years focusing on Level 2 to make short term trades/scalps. (I uses ADVFN's platform)

Level 2 is crucial if you want to scalp the market and the way the order book behaves is very stock specific. Some books such as VOD do not give nearly as much information as a smaller stock such as ARM/RSA, and each must be treated differently when interpreting the screen.

I wouldn't pay much attention to the total volume on each side, because as previously mentioned, this can be easily skewed to mislead. Although you can drop down the buy/sell orders box and select 1/2% to give you a better picture without wild orders.

To get a good understanding I would suggest watching 3 or 4 different priced stocks on the level 2 screen when the markets moving. EG: OOM/AVZ/LLOY/RBS, these will give you an idea of how each behaves and the size of orders that flow through.

I personally prefer to scalp stocks around the pound price level. This is because the resistance and support are much clearer due to the 0.25p increment moves and I find the order book's easier to read. Iceberg orders are easier to spot, computer placed trades are a giveaway on the thinner stocks too.

Take ARM as an example yesterday, the selling was pretty much relentless all the way to the close, large icebergs orders were being placed directly onto the offer, they kept the selling in check though, rarely did they sweep the bid leaving only a few buyers.

If you're looking to buy that sort of stock for a bounce, you need to see the bid being cleared leaving only a few orders left, this along with a spike down in the price. Then immediately I want to see big orders coming on the bid, maybe not bidding top price but showing some strength, I want to see more of these orders building up, then I'll hit the offer, forget about trying to bid for stock after a clear out like that you'll never get it (unless your wrong about the trade, then u dont want it anyway!). Ideally you'll want to see orders being pulled from the offer at various prices levels now and the bid building. If I see this and I see buyers hitting the offer in size, I'll quite often hit the bid again and double my position, set my stop just below the last low, and sit tight to see if Im right. At this point, the buyers will have driven the price up a bit and you will showing a small profit. This is the crucial moment. If large sell orders start to come onto the offer and are not immediately snapped up by buying, sell your position. This is an ominous sign and I want to see the sellers finished and the buyers hungry for stock, if thats not the case, bank the scalpers profit and get a buy ticket ready in case you want to get back in.

(This scenario after some heavy selling is showing signs that the seller has finished his wave, they tend to get impatient when they have only a few shares left to fill and that is why you will quite often see the bid being wiped to finish the order.)

Hope that makes some sense, drop me a mail: mark at daytradersolutions dot com if you need some clarification!

The above is all IMO and DYOR!!!!!

Very interesting. Thanks for the reply. When ARM was selling off on Monday did you find that the order book was clear enough for you to actually short this stock from 90 to a low of about 82?

I have often found that when a stock is really moving down on high volume, for example SHELL recently,it is quite difficult to know whether the stock is about to rally. It kind of leaves me unsure about whether to sell or buy. The order book looks quite confusing to me in these situations. I kind of have it in my mind to sit , watch and wait until the action subsides a bit before I take a position. Do you take a similar approach? It seems to me that the LEVEL 11 data can be a little unhelpful in such circumstances. I wonder if LEVEL 11 is better suited to a relatively stable market condition when looking for a clear signal.
 

richarjl

Junior member
11 0
jtrader said:
Hi richarjl

some traders also make use of level 2 data trading through direct market access brokers, where they can buy a stock on the bid price and look to sell it on the offer price - making a profit within the spread. Whereas normally through spreadbetting for exampe, you would buy on the offer price and sell on the bid price.

if you look under 'discussion' - 'search for a post' - then type 'level' in the search field - and select 'search in titles only' you will also find other useful discussions on the use of level 2 data that may be of interest.

Thanks

jtrader.

Thanks for the reply.

I have had a think about using a direct access system. I might look into IG Markets ' Dealer Package'. This should allow me to trade inside the spread. I had a go at paper trading today as if I was using a direct access system on BP. It seemed that trading inside the spread of .25 was difficult to profit from unless I used bought a fair sized batch of stock. Is this a technique that can be used in the UK?

Is it a technique that is more suited to a very illiquid stock that has a quite wide spread?

I certainly saw the possibility for it to be used at the open each morning when the order book is low on volume and a large spread is evident. Do you know if this is a viable trading technique?
 

richarjl

Junior member
11 0
Racer said:
It is very easy to weigh the book and give a bias when there isn't one for thinly traded stocks..

I know, it is easy to do ;)

When I look at the order book for a stock such as MONI then I find the level 11 data pretty unhelpful in a slow and inactive market. The spread is very wide and the volume on the book is very thin. I would not know what way to trade in such circumstances. I normally wait for some movement before acting. I must admit It seems much easier to determine direction when a steady stream of trades are going through the book. Do you think traders in the city , from several different brokerage firms, act in collusion and weigh the book in order to give a false impression of demand etc?

I once saw the market open for SHELL and the order book had massive volume on the bid side. The offer side was almost devoid of any orders. This stayed like this for several minutes. I thought ' Wow this stocks going to fly any moment'. Not much happened in the way of buyers hitting the offer. Not much happened in the way of sellers hitting the bid. All of a sudden the massive buy order volume vanished , the sell order volume stayed unchanged and the stock price collapsed. I have not seen that happen before. I wonder if this is a extreme example of the book being given a bias in order to kick a rally off. If it was then it seemed that a large number of traders were all thinking the same thing at exactly the same time. Or did some one or some firm load the book up on their own. I wonder.
 

richarjl

Junior member
11 0
jtrader said:
Hi richarjl

I can only imagine level 2 data being of any use to intraday traders only.

I too traded UK FTSE100 SETS stocks with the aid of level 2 data alongside my charts. I found it useful for providing peace of mind. I could see support and resistance levels and could see the depth of these levels and whether they were in danger of collapsing.

Level 2 can be interpreted and used in different ways, whether you are a spreadbetter or trade through a Direct Market Access broker such as GNItouch.com

Generally, I looked at the volume on the bid and offer sides of the book. If there were twice as many buy orders as sell orders, the stock is in demand and it is likely that the price will rise. If there are twice as many sell orders as buy orders it is likely that the price will fall.

However, I also payed closer attention to the dozen or so orders (and the level of associated volume) nearest to the current spread, because there can be large orders some way down the order book that are not likely to be triggered for some time. But, if you take them into consideration when looking at the overall buy orders and sell orders volume, this can paint a misleading picture.

I do not know much about advanced scalping techniuies associated with level 2 data I'm afraid.

I did try ADVFN level 2 data - and didn't like the layout, as you cannot see that many of the orders on the book wihout having to scroll down. However, it was the cheapest that I tried. I preferred thew layout of moneyam.com's level 2 data, as you could see more orders without having to scroll through them, the appearance of the order book is customisable in terms of colour etc., and it is priced nearly as competitively as ADVFN.

I also tries proquote.net's level 2 data. Although good, it was hugely overpriced, and I actually preferred moneyam.

HTH.

Do you still use the level 11 system for your trading or was it not that useful in the end?
 

Captain Haddock

Active member
122 5
richarjl said:
Very interesting. Thanks for the reply. When ARM was selling off on Monday did you find that the order book was clear enough for you to actually short this stock from 90 to a low of about 82?

I have often found that when a stock is really moving down on high volume, for example SHELL recently,it is quite difficult to know whether the stock is about to rally. It kind of leaves me unsure about whether to sell or buy. The order book looks quite confusing to me in these situations. I kind of have it in my mind to sit , watch and wait until the action subsides a bit before I take a position. Do you take a similar approach? It seems to me that the LEVEL 11 data can be a little unhelpful in such circumstances. I wonder if LEVEL 11 is better suited to a relatively stable market condition when looking for a clear signal.

Richard, in the morning ARM was very unclear, the only clue to a sell off was the early large trade at 85p behind the book. They then opened it much higher so they could offload stock steadily throughout the day. I prefer to let things settle in the morning, see how its behaving, how many orders are coming on etc before taking a position, but they were particulary good at disguising the weakness on monday.

With regard to the fake book loading, they become easy to spot once you know what you are looking for. Firstly they never sit near to the current price, they don't want to be filled so keep themselves out of the action. An even bigger giveaway is moving the order away from the price as it gets closer. They often use large round numbers. If you think like a player with a large order to fill, there's absolutely no point in showing your hand, it will only help to push the price away from you, any trader worth his salt who wants to fill a big clip will work it over a period of time manually, some may enter an iceberg.

Of course if you're a seller with a large order to fill, what better way of bringing buyers to you than by creating an illusion of support, let the buyers hit your offer. Once you've got your short position, give the stock a bit of a squeeze, yank away all those large fake bids you've had in and watch the fear as all those who bought stock from you 5 mins ago are running for cover as the large orders they were hiding behind using as stop levels disappear.

One thing to bear in mind, although L2 is an excellent tool for trading, 50% of a stocks move is driven by the index so on a day with no news on the stock your trading look to the index to give you pre warning of a turn and a change in the structure of the L2 book to confirm.

Direct access can be a great tool as long as you can get the com's down to a very low level, otherwise dont bother IMO, use someone like CMC cfd's to start off with, pay no coms and get used to quickly scratching trades when they go wrong at no or a little loss. Theres no point in getting inside the spread if your com's are greater than the spread!!
 

richarjl

Junior member
11 0
Captain Haddock said:
Richard, in the morning ARM was very unclear, the only clue to a sell off was the early large trade at 85p behind the book. They then opened it much higher so they could offload stock steadily throughout the day. I prefer to let things settle in the morning, see how its behaving, how many orders are coming on etc before taking a position, but they were particulary good at disguising the weakness on monday.

With regard to the fake book loading, they become easy to spot once you know what you are looking for. Firstly they never sit near to the current price, they don't want to be filled so keep themselves out of the action. An even bigger giveaway is moving the order away from the price as it gets closer. They often use large round numbers. If you think like a player with a large order to fill, there's absolutely no point in showing your hand, it will only help to push the price away from you, any trader worth his salt who wants to fill a big clip will work it over a period of time manually, some may enter an iceberg.

Of course if you're a seller with a large order to fill, what better way of bringing buyers to you than by creating an illusion of support, let the buyers hit your offer. Once you've got your short position, give the stock a bit of a squeeze, yank away all those large fake bids you've had in and watch the fear as all those who bought stock from you 5 mins ago are running for cover as the large orders they were hiding behind using as stop levels disappear.

One thing to bear in mind, although L2 is an excellent tool for trading, 50% of a stocks move is driven by the index so on a day with no news on the stock your trading look to the index to give you pre warning of a turn and a change in the structure of the L2 book to confirm.

Direct access can be a great tool as long as you can get the com's down to a very low level, otherwise dont bother IMO, use someone like CMC cfd's to start off with, pay no coms and get used to quickly scratching trades when they go wrong at no or a little loss. Theres no point in getting inside the spread if your com's are greater than the spread!!

Very interesting. I had a chat with IG Markets about their direct access platform but I immediately noticed that the .25% charge could negate the benefit of getting inside the spread. The level 11 data they provide was free and they stated that a 3 - 5k deposit is whats needed to get going. I appreciate the costs of cariage etc and the lack of interest on deposited funds make it far from free but it's possibly cheaper than some other level 11 feeds.

Interesting point about the watching of the index and then the level 11 book data.

On the subject of iceberg orders are these a large batch of stock that is manually drip fed so to speak into the market or are they some sort of programmed order that activates without trader activation?

I watched a stock the other day and someone was putting a buy order on the book and then removing it in rapid succession. Some one mentioned that this is called 'machine gunning the price'. I guess that this is done to give the impression of movement in the stock. It did appear to be very active but when I checked the trades blotter none had actually occurred. I guess someone was trying to get some action stared as the market was slow. May be it's done out of boredom. It nevertheless is a sort of manipulation so to speak. A bit like fake orders.
 

theknifemac

Well-known member
340 0
richarjl said:
On the subject of iceberg orders are these a large batch of stock that is manually drip fed so to speak into the market or are they some sort of programmed order that activates without trader activation?

Hi richarjl

An iceberg order is where a trader sends an order for a large number of shares to the exchange, but they do not wish for the full order amount to appear on the order book as this would give away the fact that there was a large buyer / seller in the market. As buyers / sellers match the iceberg orders price, the order is executed with the tip of the iceberg still showing on the order book. This saves the trader having to split the order up into small waves and sending them down to the market individually as they get filled.

Sometimes you will see this when you send an order down which is bigger than best bid or cheapest offer and you would expect to be part executed at the inside and have to then hit the bid or lift the offers further down the stack (assuming your limit price allows) but all your order is executed at the inside, indicating an iceberg order.

You will also see a certain size order on the book which is then executed an re-appears again with same size and price, this is more likely a program or re-loader which is sending the smaller shapes itself rather than using an iceberg. In the US markets icebergs are called reserve orders but work a little differently.

Hope this helps

Stew
 
 
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