Reading the Ticker -- Level II

[alphabeta123]

Guys,

I have been trading stocks and commodities for a while and I am still confused with Level II. Its really good at telling you market liquidity but not so much for market direction. I have actually been noticing the opposite of conventional wisdom -- Level II seems to be a contrarian indicator. Every time I notice more bids (buyers) than asks(sellers), the market seems to head lower and I noticed when the market has less bids(buyers) thanks ask(sellers) the market rallies. Has anyone picked up on this. I actually haven't seen too many postings on the internet about this behavior.

 

[paulbazo]

Try looking for DOM and T&S analysis ...If you really understand how price works, youll know that just because there are more asks (sellers) than bids out there doesnt mean the price will go down ... also a good way for big firms to try to fake out trends its to make a lot of limit orders against their position and then cancelling them ... all of those orders were never placed and the price didnt move in that direction or it didnt move at all, trapping traders who thought a move was coming ... Remember, someone has to actually buy or sell at market in order for price to change ...

Try looking at this: Tape Reading - Learning Curve

 

[vking27]

Be very careful not to confuse the "Ask/Bid" as sellers/buyers that you see on the T&S. Aggressive market orders by Buyers traded at the Ask price (this ask price is basically the sell limit orders/in other words "Sellers" who will sell you what you are buying) and aggressive market orders by the Sellers are traded at the Bid price (this Bid price is the buy limit orders/in other words "Buyers who will buy you what you are selling/loading off). So when you see the red print on the T&S (i.e. selling), its market Sell orders executed at the Bid price and when you see the green prints (i.e. buying) its market Buy orders executed at the Ask price. Don't confuse these traders at the Ask/Bid as the ones initiating the transaction. Like Paulbazo advised, try and watch orders on the DOM/Level II and these that are printed on the T&S.

 

[wino59]

Guys,

I have been trading stocks and commodities for a while and I am still confused with Level II. Its really good at telling you market liquidity but not so much for market direction. I have actually been noticing the opposite of conventional wisdom -- Level II seems to be a contrarian indicator. Every time I notice more bids (buyers) than asks(sellers), the market seems to head lower and I noticed when the market has less bids(buyers) thanks ask(sellers) the market rallies. Has anyone picked up on this. I actually haven't seen too many postings on the internet about this behavior.

You really can't just look at the bids and offers, as others alluded to, it is more important to see what how many trade a certain price, and what happens from there.

The bids and offers are often manipulated to show strength or weakness to temporarily hold the market down or up, so the big players can get in a price they want.

Basically you have to spend hours watching it before you get a sense of what is going on. Also you need a real good DOM, which can make a difference. Once you get a feel for the prices trading, you will see bids or offers pulling, or building that is the way I look at the bids and offers, I want to see who is pulling their bids, when all the sudden 2000 contracts trade. You got to sort of see the whole picture, bids, offers, pulling bids, pulling offers, size traded, sticking prices, how fast it moves, or slow, etc, and then you will get it.... But it will take many hours watching, before you start piecing it together.

Just my 2 cents. Good Luck

 

[Eurex]

Guys,

I have been trading stocks and commodities for a while and I am still confused with Level II. Its really good at telling you market liquidity but not so much for market direction. I have actually been noticing the opposite of conventional wisdom -- Level II seems to be a contrarian indicator. Every time I notice more bids (buyers) than asks(sellers), the market seems to head lower and I noticed when the market has less bids(buyers) thanks ask(sellers) the market rallies. Has anyone picked up on this. I actually haven't seen too many postings on the internet about this behavior.

It would be worth reading about Flipper in case you are interested why fake volumes appear and disappear. Some of the algos spook the price for a very tiny amount of sec which gives a trader false signal and then go in the opposite direction stopping everyone out and price spikes. In my experience these are present during non volatile times. like lunch time or when market is not doing much since someone can hunt the algos also. Read about Paul Rotter its in T2W somewhere.

If you are interested in bid ask and delta(Buy-Sell for the day) without straining your eyes much then have a look at Market Delta Footprint chart. I use that for EuroStoxx for 6 rev and actively watch the ladder to make decision. Use the trial one to get used to it or watch some of there videos.

 

[numbertea]

I haven't seen any good DOM software in action that can do what I want so I made my own to interact with my broker. I can see cumulatives bid vs ask in different time frames and whatever else I want now. It is "bid ask", not "buy sell" because these are the limit orders placed, not the orders that necessarily are filled. Comparing that is also informative. I have been trading with L1 data only but now that I can use L2 a whole new world has opened up before me and exploring that world is making me more happy every day. I am varaciously applying the data patterns in L2 to the standard chart patterns and it is rewarding.

Cheers

 

[bisecom]

I haven't seen any good DOM software in action that can do what I want so I made my own to interact with my broker. I can see cumulatives bid vs ask in different time frames and whatever else I want now. It is "bid ask", not "buy sell" because these are the limit orders placed, not the orders that necessarily are filled. Comparing that is also informative. I have been trading with L1 data only but now that I can use L2 a whole new world has opened up before me and exploring that world is making me more happy every day. I am varaciously applying the data patterns in L2 to the standard chart patterns and it is rewarding.

Cheers

Hi, perhap I did not understand you exactly.
But to see bid ask at different time frames = footprint...

 

[numbertea]

Hi, perhap I did not understand you exactly.
But to see bid ask at different time frames = footprint...

I'm really not too familiar with the many different footprint charts out there. I created my own custom indicators to give myself a clear picture of the state of the current market. Using bid and ask combined with trading volume and price movement helps my trading immensely.

Cheers

 

[bisecom]

I'm really not too familiar with the many different footprint charts out there. I created my own custom indicators to give myself a clear picture of the state of the current market. Using bid and ask combined with trading volume and price movement helps my trading immensely.

Cheers

It is ok, if it did for you something and it could work for you.