Proquote Level 2 ....... from Chatroom discussion



I enclose edited details of a chatroom discussion of today which may be useful to others.

[20:47] <Stoker> Earlier on I was talking how MMs were manipulating the L2
[20:48] <Stoker> because I have been following CS closely I noticed one of their tricks
[20:48] <Stoker> When using your L2 it is important that you do not rely on this alone
[20:49] <Stoker> When I am interested in a share...usually from prior assessment in aiq
[20:49] <Stoker> I check out the L2
[20:49] <Stoker> If that interests me, then I also open up trades
[20:50] <Stoker> For the benefit of the others that were not in pvt with us this morning Strad....
[20:50] <Stoker> Whilst watching CS. [Corus]
[20:50] <Stoker> which I've been shorting from 81.5
[20:51] <Stoker> I noticed that on average, buys were between 300 to 500k whilst sells remained fairly constant at about 1,500k on L2
[20:52] <Stoker> the share moved in line with this pressure down to from 81 to 72.
[20:52] <Stoker> Then I noticed two big buys were placed , off the screen at a lower price for 3.5 million shares
[20:53] <Stoker> Now if anyone in the chatroom asked what was L2 on CS
[20:53] <Stoker> a reply of 3,800 / 1,500 would have been seen
[20:53] <Stoker> but 3.5 mill were not real buys
[20:53] <Stoker> they were off the anyone in the chatroom without L2 wouldn't be getting a true picture.
[20:54] <Stoker> Obviously the MMs were worried about the plunging price....
[20:54] <Stoker> incidentally...I also keep a log at the end of each day of share sells and buys from ADVFN
[20:54] <Stoker> it's crude , not too reliable but....
[20:55] <Stoker> it showed over the previous weeks that there were far more sells than buys
[20:55] <Stoker> perhaps the MMs had too much stock and they had to do something....
[20:55] <Stoker> Well their fake worked
[20:56] <Stoker> for pretty soon afterwards came some nice limit buys
[20:56] <Stoker> which gradually increased the buy / sell ratio accordingly
[20:56] <Stoker> and as soon as the MMs could they withdrew their 3,5 mill buy
[20:56] <strad> Stoker, got the idea..not clear on SETS...where do MMs fit in, thought it was sort of MMs

[20:57] <Stoker> Well MMs don't directly make the book on Sets
[20:57] <Stoker> but indirectly they DO
[20:57] <Stoker> because they buy and sell off the SETS just like you and I, and they buy and sell market orders within the touch

[21:19] <Stoker> have you PQ running ?
[21:20] <Stoker> right then, if you are in the chat-room and you haven't got L2, you ask for L2,
[21:20] <Stoker> let's say you are interested in Powergen today
[21:20] <Stoker> get l2 up for pwg
[21:21] <Stoker> say when done
[21:21] <strad> 186/1196
[21:21] <Stoker> that's what you tell the room
[21:21] <Stoker> now this is a little special because there is a possible bid situation on pwg
[21:21] <Stoker> but from 186/1196
[21:22] <Stoker> you think this is a major sell don't you?

[21:22] <Stoker> but when you look at the sell depth
[21:22] <Stoker> you find 3 * 300 ie nearly 1 mill sell at 745
[21:23] <Stoker> which is no where near the current price of 676
[21:23] <Stoker> and it is off screen

[21:23] <Stoker> you need to move your bar at the right to see this
[21:23] <strad> yes found them
[21:23] <Stoker> so really it is about 186/292
[21:24] <Stoker> not quite as bad
[21:24] <Stoker> .. you have to be aware of this
[21:24] <Stoker> Now the other thing to be aware of is when the MM is faking close to the touch

[21:24] <strad> got to check the depth, yes i see that bit
[21:25] <Stoker> you can only spot these if you are running trades at the same time as L2
[21:25] <Stoker> Now I don't know of any at the mo but let me show you how to spot them

[21:25] <Stoker> Open up L2 on LLoy
[21:26] <Stoker> now click on trades and position the opening window next to L2
[21:27] <Stoker> MMs usually fake with larger amounts

[21:28] <Stoker> Can you see the limit sell order at 648 for 35,ooo?
[21:33] <Stoker> well say you are following LLoy and you see that 35k sitting as a sell at 648
[21:33] <Stoker> and then you see it disappear
[21:33] <Stoker> you check in the trades to see if the deal actually went through
[21:34] <Stoker> or it could be pulled

[21:34] <Stoker> now a MM ususally pulls it just b4 it reaches the touch line
[21:34] <Stoker> i c another limit sell order has just come in
[21:35] <ChartMan> 38k @ 647?
[21:35] <Stoker> yes C. but see the 52235 at 649.5

[21:35] <Stoker> when a MM is faking you can see the orders being pulled as they approach the touch
[21:35] <ChartMan> 15372 @ 649.5?
[21:36] <Stoker> Amazing the 52235 was pulled! How's that for coincidence.....
[21:36] <Stoker> amazing
[21:36] <ChartMan> ah!
[21:36] <Stoker> see the 15372 has just been pulled too
[21:36] <ChartMan> i need 6 eyes

[21:37] <Stoker> now it's either MMs playing silly buggers or a big player changing their minds
[21:37] <Stoker> If you think about it 50k of shares at £6 odd is a lot of dosh
[21:38] <Stoker> and it's usually MMs or brokers for funds that place those deals

[21:39] <Stoker> But the essence of what I'm saying Strad is that L2 is just one tool,
[21:39] <Stoker> and a tool that can be manipulated
[21:39] <Stoker> so be careful out there

[21:39] <strad> stoker, i buy my 1000 via tdw say, they place with MM or direct to Sets book?
[21:39] <Stoker> they would place at sets if you put a limit on them
[21:40] <Stoker> eg say you wanted to buy Lloy today
[21:40] <Stoker> but didn't want to pay over 640
[21:40] <Stoker> then you would place a limit order with tsw
[21:40] <Stoker> if they accept limit orders from you, they would place it on the sets

[21:41] <Stoker> another interesting thing
[21:41] <Stoker> you all know that for 10mins b4 and after market there is a MM auction on the Sets books..
[21:42] <Stoker> I always find it interesting to take a snapshot of the L2 as the mkt closes
[21:42] <Stoker> and compare it with a smnapshot taken 15 mins or so later after the auction
[21:43] <Stoker> I do this with that program Martin told me about Snagit
[21:43] <Stoker> from if I remember rightly
[21:43] <Stoker> great little prop

[21:45] <Stoker> So DON'T believe everything that you see in L2
[21:45] <Stoker> another thing
[21:45] <Stoker> it's interesting to see MMs accumulate their buys to fill a large, ususally shown as a delayed order later in the day
[21:46] <Stoker> I noticed a lot of that following EGS, energis a couple of weeks ago

[21:46] <strad> so MMs rake in buys, to fill a big sell order say, you see the buys but not the big that it?
[21:47] <Stoker> so if there are lots of sells but the price is still rising gently, it could mean that the mm is filling a large order, or BEWARE it could be a trap, lol
[21:48] <Stoker> sells are buys to the MM, you need to see it from your perspective

[21:50] <Stoker> remember thought you cannot use L2 like a photograph, you must use it like a video
you've got to keep watching what is happening.

[21:58] <Stoker2>You will see from the trades that there are a lot going trough at 647, which is inside the touch of 645 - 648
[21:59] <Stoker2> that's because what you see on sets are only unfilled limit orders
[21:59] <Stoker2> all market orders will be satisfied by MMs at their published prices within touch
[22:00] <Stoker2> or if their prices are outside touch, off sets if the limit order was not 'all or none'

Hope all that was helpful..............
Yes, thanks for taking the trouble to precis that discussion and post it here.
spot on...

Stoker raised some very good points, a regular L2 user...I do encounter many such turns into a puzzle has to be careful..still a very useful tool for short term/intra day trades...can't trade without L2..