Day Trader's Guide to Understanding Level 2 Quotes
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Each Market Maker competes for customer order flow by displaying buy and sell quotations for a guaranteed number of shares. Plus Day Trading Tips that give you an advantage for decision making in the stock market. A Day-Trading Formula that works with any Stock - Helps you predict how to use level 2 for stock trading stocks movement and price for the next trading day. It gives day traders split second changes in the marketplace while tracking brokerage firms and electronic communication networks' buying and selling activity.
Step-1 See the three separate boxes within the one Level II screen. These vary according to your service provider and are distinguished by color. The details are the same. This is the time stamp box.
Step-4 Look at the list containing number of shares, bid prices from highest to lowest with corresponding ask prices from lowest to highest. This box contains the market makersbrokerage companies and ECN's lined up for trades. Each stock has an average daily trading volume so compare that number with the current amount in this box to determine any increase or decrease in the volume. A lot of volume might mean news is out. Better check for news. Step-7 Use your favorite website to see the average trading volume.
This information is found on many sites, such as yahoo. Compare average with current total amounts. Keep an Eye on the Time Stamp Box Step-8 Watch each trade noting time, price and number of shares for each transaction. Every trade for an individual stock is published in Level II stock quotes. Step-9 Apply this information to see which way the price is moving and the share size of each trade. If the trades are large in size and the price is moving up then there is greater demand than supply.
Step Notice closely this momentum of price and share amount. Day trading skills involve quick execution. The market turns when price levels stall out. The time stamp is a good indicator for direction of price.
One column contains bidding share price and size. The other column has asking price quotes and size. How to use level 2 for stock trading Track the market makersbrokers and ECN's next to these orders if available. The advantage is that the day trader sees if the sellers are lining up or the buyers are lining up moving the stock up or down.
Remember the side that has the most shares is a good indicator of which way the price will move. Step Know the market makers and brokerage firms that are active. It's good to realize who is moving the market.
They are listed by letters and not full names. All brokerage companies trading on the exchange have symbols. Observe over time to pick out the market maker wanting to unload a large amount of stock. This usually means a downward price movement. Remember the reverse is also true! Step Know the ECN's. Many times individual trading activity is routed by a broker or service provider to these automated trading systems. A quick glance indicates who is buying or selling in real time with the direction of price based on volume.
See your list to get a feel of which market is active. Step Make the trade or decide the risk is too high based on the activity. Use Level II stock quotes with other available resources. Many brokerage and service firms offer Level II stock quotes free for active traders while others charge a fee.
Usually a margin account is used for day trading so be very careful when buying on margin. Study the risks and rewards before an account is open. Remember this is a skill. Practice makes perfect applies! Don't look to Level II quotes as an exact science because the market moves quickly and orders are constantly changing as you watch.
Generally if the last price or closing price how to use level 2 for stock trading higher than the average price today you will usually see the stock following through going higher the next day providing there is no bad news overnight or in the early morning pre-market open. Same in reverse just run the numbers on a stock if you are going long and if the closing price is below the daily average I would wait a bit to see.
All you are trying to do is to make an educated how to use level 2 for stock trading to how to use level 2 for stock trading direction a given stock is moving. The market makers use this formula and most day traders use it all throughout the day to keep a sharp eye on stocks they have. Some stocks pullback or dip in the morning if your stock does that's in your favor so have three prices figured out on paper so you can make a quick decision.
If you are going to day trade you need to be quick and confident with a plan and know your exit before you enter and visa versa.