One way to play resistance on Nas level 2

Naz

Experienced member
1,391 24
Many times a stock will run up hard in the morning EST and consolidate at the highs for a number of hours waiting for a break out in the afternoon.Its a pattern that many players look for.Up, sideways,breakout.

VRTS was one such stock yesterday. This works the best at whole numbers and 2 day resistance.

Every time the stock reach's resistance near the whole number on this type of setup, i like to take the short just before it runs out of steam on my level 2.This is because you can only short on the Nasdaq when the last price on the bid was an uptick.So if you wanted to get confirmation from a graph you'd never be able to short the stock.Once filled i place a buy order 15c away to go long double the amount that i'm short.


This means that if it is a true breakout, in one order i'll cover my short and be the same size position long with the momentum behind me.

This is how it worked on VRTS.I notice how it keeps falling away from its 2 day high after a strong run up.So the two next occasions it runs to resistance at $31. I short a 1000 shares with 15c stop as mentioned above.The stock falls away and i take profits near support for 50c profit,$500.Up it goes again and do the same thing again,another $500 profit.

It runs up again and the same trade is taken.If it fails big time at this 2 day resistance it could run down $2 for $2000 profit.However this time we have a true breakout.This is what happens.

The stock is short 1000 shares at $31 the stop is put in at $31.15 it is for 2000 shares long.The momentum rises and it breaks out,my order is triggered on island and i buy 2000shares with one ticket charge.The net result is that it closes out my short position for a 15c loss and leaves me long 1000 at $31.15.It makes a run for the close and i sell the long for a profit of 35c. ie $350.

Total profits were 500+500+350-150= $1200

This was not a manic level 2 trade but a slow easy trade taken over a couple of hours, that any one could have taken during the evening, UK time.However i couldnt have played it without understanding how the stock was behaving on my level 2 screen and taking my trades with direct access.

Because of the 4:1 margin it only used $7,750 from my account which allowed me to get on and do other trades in shorter time frames.It was an easy slow trade taken with a plan and stops in place.Total return on capital used approx 15%.
 
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RogerM

Established member
752 6
Great post Naz.

For those who have not sorted US r/t charts, here's the chart which hopefully shows the trades Naz has explained.

With wishful thinking, I would hope that having had 3 successful trades yesterday, I would have been watching it today. Whether I would have shorted at the first lower high after the opening gap, I don't know. But Nasdaq stocks seem to abhor a gap, so on the first higher low, heading up into the gap, go long at about 29.8 - and at time of writing, s/b still be in $3 later - which on 4:1 margin is about +40% (sigh).

I expect I would have sold when the first uptrend was broken just above the gap, but hope I would have had the bottle to go long again when the top of the gap provided support.

What would Nasdaq level2 tell you about these support levels Naz?

Regards,
 

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RogerM

Established member
752 6
O.K. .......... trend now broken, and bearish rising wedge. Time to close a potentially great trade? What is nasdaq Level2 saying?
 

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RogerM

Established member
752 6
... or is it a consolidation pattern with more upside to come?

Here's the level2 screen.
 

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Naz

Experienced member
1,391 24
Roger,once again thanks for the graphics.

Just to get things straight the level 2 screen is actualy the combined ECN books of Archipelago,Island and redibook. True level 2 would show all the market makers and only the best bid and ask from each of the three Ecn's shown.

Many thanks once again Roger.
 

RogerM

Established member
752 6
So the screen shot above is not true level 2 then? Sounds as though it's important to ensure that you are getting the real McCoy. Any chance of a fuller explanation of what we should be looking for, and perhaps a screeshot by way of a demo Naz?

Regards,
 

RogerM

Established member
752 6
Wow! Look at it go. Here's the answer to whether or not it was a consolidation pattern. Were there any clues on the Level2 screen?
 

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