Level 2 Screen Use is DEAD !

JO,

The Ax is always a MM and never an ECN regardless of how much stock is transacted through the ECN. The problem is that the Ax can be a different MM at different times during the trading day. Some packages (such as esignal) have the option of displaying the number of times each MM has been at the Inside Bid and Inside Ask during the day which may give an indication as to who is controlling the stock. If you use this you must ignore the number of times any ECN has been in these positions because it will always be higher than anyone else but is not of relevance.

If you want to know who is the Ax for any stock on an ongoing basis you can get the information from this link:

http://nasdaqtrader.com/asp/TDResp....ue=QCOM&Hour_Period=1&Month=7-1-2004&x=32&y=6

And the information you get looks like the attached screenshot

For an example of Smart money it could be a case where a stock is in a consolidation phase after a sell off with narrow range bars and constant but low volume. The money is being used to accumulate the stock quietly and to effectively reduce the number of shares available in the market to trade. Once a large position has been made the owners will then "Markup" the stock and this is when you will see the prie start to increase with the close of bars being near the high of the range. Once the stock has increased sufficiently in value the Smart money will then sell at the highest possible price and this is called distribution. You will often see a price and volume spike at this stage where the "Dumb" money jump on board what they believe to be a fast moving stock and they will buy at any price. By this time the Smart money has gone and you will often see the price then collapse.

This is precisely why I dont trade based on momentum because just as the stock starts moving at its fastest is the most likely time to get hit for a large loss.

dbphoenix gives a much better explanation of this and I may well have missed out parts of what happens but I hope this helps.


Paul
 

Attachments

  • Ax Share.gif
    Ax Share.gif
    9.1 KB · Views: 413
Trader333 said:
For an example of Smart money it could be a case where a stock is in a consolidation phase after a sell off with narrow range bars and constant but low volume. The money is being used to accumulate the stock quietly and to effectively reduce the number of shares available in the market to trade. Once a large position has been made the owners will then "Markup" the stock and this is when you will see the prie start to increase with the close of bars being near the high of the range. Once the stock has increased sufficiently in value the Smart money will then sell at the highest possible price and this is called distribution. You will often see a price and volume spike at this stage where the "Dumb" money jump on board what they believe to be a fast moving stock and they will buy at any price. By this time the Smart money has gone and you will often see the price then collapse.

This is precisely why I dont trade based on momentum because just as the stock starts moving at its fastest is the most likely time to get hit for a large loss.

dbphoenix gives a much better explanation of this and I may well have missed out parts of what happens but I hope this helps.
That wasn't bad shot for a single paragraph Paul.
 
TheBramble said:
That wasn't bad shot for a single paragraph Paul.

The price and volume spike is expanded on in Techniques of Tape Reading by Graifer and Schumacher - they call it Capitulation and Euphoria. A good book to read for those interested in this area.

Stew
 
More questions about market makers.

I think I understand what you said about stocks. Is the situation different in commodity futures or currencies? Is there something equivalent to Level II screens for futures traders?

Also, I am having trouble even getting to a basic delayed chart (with vol and OI) at futuresource.com

Go here,
http://www.futuresource.com/charts/charts.jsp?s=ECU04
Yep I see the chart

http://www.futuresource.com/charts/charts.jsp?s=ECU04&o=&a=D&z=610x300&d=medium&b=bar&st=VOI(1,1);
Yes, the volume and OI shows

click on 5min link at the bottom left of the chart :
http://www.futuresource.com/charts/charts.jsp?s=ECU04&o=&a=D&z=610x300&d=medium&b=bar&st=VOI(1,1);

doesn't work - I see a broken image icon

So glad I am only trading on paper as it is clear to me that I am in way over my head.
JO
 
JO,

I dont trade currencies and I used to trade futures but dont do so at the moment. Your third link above could just be a problem with the website link.

It may be worth signing up for a delayed service that will give you more flexibility as you can do this for around $23 a month with a good trading platform that would give you a much better view of what you are trying to do.


Paul
 
You may want to take a look at tymoraPro at http://www.yourika.com - it does loads of level 2 analysis and processing, and goes way beyond just tallying up the number of times a market maker shows up at the best bid or best offer. It also analyzes their quotes along with the order flow that they appear to receive and even tracks how much buying and selling goes on at each price level. It also creates a spread again so that you don't need to watch every penny up or down when it's analyzing the amount of buying and selling going on at each level. If you haven't heard of it before, definitely worth a look.
 
Level 2

Hi Naz,
I am a new member and am looking for Level 2 instruction. You sound like a real guru. How do I find out more about your classes (location, medium, price, website?) Any info will help.
Thnx
 
Top