Looking at the order books by Darren Winters
Have you ever wished that you could make a trade in the knowledge that you knew what was going to happen? A bit like getting in your time machine and going forward for a couple of minutes and then zipping back and making a trade.
Well if you have, sorry but the technology has not yet been invented. If and when it does, we don’t think we will get to see it until the inventor has made a fortune. However, we can get a reasonable idea of what is going to happen using several methods.
Of course many use technical analysis with some excellent results. We have been using such analysis for years. At the end of the day we rely on that next tick of the stock price, right? Well you could do but that is all history.
Wouldn’t you prefer to being given an idea of what is going to happen rather than what has just happened? The good news is you can. Many investors that we speak to have asked us what level 2 (level II) screens are. Here we are going to give you a brief introduction.
In summary, a Nasdaq level 2 screen will display all the market makers identity (MMID) in each security (note, the UK versions do not generally contain this information). It will also display all the quotes (bids and asks) for each stock in real time. We will cover this in more detail in a moment. But first you are probably thinking what is level 1 and level 3.
Level 1 screens will show you only the best bid and offer. A level 3 screen is reserved for the market makers that are registered in a particular security. They are able to adjust their quotations, make trades and update their volume reports to the main exchange.
Now unless you are going to day trade, seeing what is in the order book is of little use as it changes constantly. Awareness of what it is may be useful for all, whilst some further training would be essential for anyone wishing to trade using it.
I have shown both a UK version offered by ADVFN (below left) and a US version (below right). With the US version I can buy or sell by simply clicking on the price of the market maker that I choose and then click on the buy or sell button and the trade is placed cutting out a broker.
Quite simply the bid price or the left column on the two screens is the price that the market maker is willing to buy for and the ask right hand column is the current price the market maker is willing to sell for.
By looking at the screen you can make a judgement of the way the market might move based on the volume at each price. If you take the example below left, we can see that there is some potential resistance at 998 as that is where there is some larger volume sitting in the sell orders column. Likewise by looking at the buy orders column we can see there is some support at 910. Both of these may be the extremes and may certainly move during the day.
By using a combination of a simple chart and level 2 screens it is possible to day trade with quite some success. That said, it takes time and experience to use as there are numerous actions to watch for. Market makers want to get the best price for the stock they are handling thus will do their best to hide their intentions!
Using Level 2 screens you can get an idea of just what is about to happen, this is an essential tool for serious traders.
Darren Winters
Well if you have, sorry but the technology has not yet been invented. If and when it does, we don’t think we will get to see it until the inventor has made a fortune. However, we can get a reasonable idea of what is going to happen using several methods.
Of course many use technical analysis with some excellent results. We have been using such analysis for years. At the end of the day we rely on that next tick of the stock price, right? Well you could do but that is all history.
Wouldn’t you prefer to being given an idea of what is going to happen rather than what has just happened? The good news is you can. Many investors that we speak to have asked us what level 2 (level II) screens are. Here we are going to give you a brief introduction.
In summary, a Nasdaq level 2 screen will display all the market makers identity (MMID) in each security (note, the UK versions do not generally contain this information). It will also display all the quotes (bids and asks) for each stock in real time. We will cover this in more detail in a moment. But first you are probably thinking what is level 1 and level 3.
Level 1 screens will show you only the best bid and offer. A level 3 screen is reserved for the market makers that are registered in a particular security. They are able to adjust their quotations, make trades and update their volume reports to the main exchange.
Now unless you are going to day trade, seeing what is in the order book is of little use as it changes constantly. Awareness of what it is may be useful for all, whilst some further training would be essential for anyone wishing to trade using it.
I have shown both a UK version offered by ADVFN (below left) and a US version (below right). With the US version I can buy or sell by simply clicking on the price of the market maker that I choose and then click on the buy or sell button and the trade is placed cutting out a broker.
Quite simply the bid price or the left column on the two screens is the price that the market maker is willing to buy for and the ask right hand column is the current price the market maker is willing to sell for.
By looking at the screen you can make a judgement of the way the market might move based on the volume at each price. If you take the example below left, we can see that there is some potential resistance at 998 as that is where there is some larger volume sitting in the sell orders column. Likewise by looking at the buy orders column we can see there is some support at 910. Both of these may be the extremes and may certainly move during the day.
By using a combination of a simple chart and level 2 screens it is possible to day trade with quite some success. That said, it takes time and experience to use as there are numerous actions to watch for. Market makers want to get the best price for the stock they are handling thus will do their best to hide their intentions!
Using Level 2 screens you can get an idea of just what is about to happen, this is an essential tool for serious traders.
Darren Winters
posted by Darren Winters at 12:22 PM
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