LEVEL 2

I have been trading UK sets for approx 3 years focusing on Level 2 to make short term trades/scalps. (I uses ADVFN's platform)Level 2 is crucial if you want to scalp the market and the way the order book behaves is very stock specific. Some books such as VOD do not give nearly as much information as a smaller stock such as ARM/RSA, and each must be treated differently when interpreting the screen.I wouldn't pay much attention to the total volume on each side, because as previously mentioned, this can be easily skewed to mislead. Although you can drop down the buy/sell orders box and select 1/2% to give you a better picture without wild orders.To get a good understanding I would suggest watching 3 or 4 different priced stocks on the level 2 screen when the markets moving. EG: OOM/AVZ/LLOY/RBS, these will give you an idea of how each behaves and the size of orders that flow through.I personally prefer to scalp stocks around the pound price level. This is because the resistance and support are much clearer due to the 0.25p increment moves and I find the order book's easier to read. Iceberg orders are easier to spot, computer placed trades are a giveaway on the thinner stocks too.Take ARM as an example yesterday, the selling was pretty much relentless all the way to the close, large icebergs orders were being placed directly onto the offer, they kept the selling in check though, rarely did they sweep the bid leaving only a few buyers. If you're looking to buy that sort of stock for a bounce, you need to see the bid being cleared leaving only a few orders left, this along with a spike down in the price. Then immediately I want to see big orders coming on the bid, maybe not bidding top price but showing some strength, I want to see more of these orders building up, then I'll hit the offer, forget about trying to bid for stock after a clear out like that you'll never get it (unless your wrong about the trade, then u dont want it anyway!). Ideally you'll want to see orders being pulled from the offer at various prices levels now and the bid building. If I see this and I see buyers hitting the offer in size, I'll quite often hit the bid again and double my position, set my stop just below the last low, and sit tight to see if Im right. At this point, the buyers will have driven the price up a bit and you will showing a small profit. This is the crucial moment. If large sell orders start to come onto the offer and are not immediately snapped up by buying, sell your position. This is an ominous sign and I want to see the sellers finished and the buyers hungry for stock, if thats not the case, bank the scalpers profit and get a buy ticket ready in case you want to get back in.(This scenario after some heavy selling is showing signs that the seller has finished his wave, they tend to get impatient when they have only a few shares left to fill and that is why you will quite often see the bid being wiped to finish the order.)The above is all IMO and DYOR!!!!!
Last edited by Captain Haddock; 27-08-2004 at 06:43 AM.

24-08-2004, 05:19 PM

richarjl
Rookie

Join Date: Mar 2004
Location: essex
Posts: 11

Quote:
Originally Posted by Captain Haddock
Hi richarjI have been trading UK sets for approx 3 years focusing on Level 2 to make short term trades/scalps. (I uses ADVFN's platform)Level 2 is crucial if you want to scalp the market and the way the order book behaves is very stock specific. Some books such as VOD do not give nearly as much information as a smaller stock such as ARM/RSA, and each must be treated differently when interpreting the screen.I wouldn't pay much attention to the total volume on each side, because as previously mentioned, this can be easily skewed to mislead. Although you can drop down the buy/sell orders box and select 1/2% to give you a better picture without wild orders.To get a good understanding I would suggest watching 3 or 4 different priced stocks on the level 2 screen when the markets moving. EG: OOM/AVZ/LLOY/RBS, these will give you an idea of how each behaves and the size of orders that flow through.I personally prefer to scalp stocks around the pound price level. This is because the resistance and support are much clearer due to the 0.25p increment moves and I find the order book's easier to read. Iceberg orders are easier to spot, computer placed trades are a giveaway on the thinner stocks too.Take ARM as an example yesterday, the selling was pretty much relentless all the way to the close, large icebergs orders were being placed directly onto the offer, they kept the selling in check though, rarely did they sweep the bid leaving only a few buyers. If you're looking to buy that sort of stock for a bounce, you need to see the bid being cleared leaving only a few orders left, this along with a spike down in the price. Then immediately I want to see big orders coming on the bid, maybe not bidding top price but showing some strength, I want to see more of these orders building up, then I'll hit the offer, forget about trying to bid for stock after a clear out like that you'll never get it (unless your wrong about the trade, then u dont want it anyway!). Ideally you'll want to see orders being pulled from the offer at various prices levels now and the bid building. If I see this and I see buyers hitting the offer in size, I'll quite often hit the bid again and double my position, set my stop just below the last low, and sit tight to see if Im right. At this point, the buyers will have driven the price up a bit and you will showing a small profit. This is the crucial moment. If large sell orders start to come onto the offer and are not immediately snapped up by buying, sell your position. This is an ominous sign and I want to see the sellers finished and the buyers hungry for stock, if thats not the case, bank the scalpers profit and get a buy ticket ready in case you want to get back in.(This scenario after some heavy selling is showing signs that the seller has finished his wave, they tend to get impatient when they have only a few shares left to fill and that is why you will quite often see the bid being wiped to finish the order.)Hope that makes some sense, drop me a mail: mark at daytradersolutions dot com if you need some clarification!