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

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Maverick

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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 pace...so 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 direct...no 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 http://www.snagit.com 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 sell...is 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..............
 

Riz

Experienced member
1,266 5
spot on...

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

rizgar
 

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