How Level 2 Quotes Work?

I was introduced to Level 2 Quotes more than a year ago. Since then, my average profit return has soar and my bad entry has reduced significantly. It has time my entry and exit with almost laser sharp accuracy.

Level 2 Quotes or better know as Level II Quotes or L2Q is uncommon in the Traders’ World. Every Fund Manager, Market Maker, Serious Trader and all other Professional Traders have them on their screen when they trade. It just can’t be like a car without a wheel.

The Level II Quotes is divided into 2 sides. On the left side is the Buy Orders queue and on the right side is the Sell Orders queue. Below the Buy Orders are divided into the number of the shares bid and the bidding price. The Sell Orders column are divided into the number of ask shares and the asking price. At each and every price level you will be able to see how many Bid and Ask are in place to trade.

Before the start of any trading sessions, the Buyers and the Sellers will place their bidding and asking price together with the number of shares they want to trade. During the opening bell, new Buyer may offer a Bid higher when they are bullish about the stock.

This process will match the Ask price from the seller. The transaction is considered done.

If the next buyer wants to own the stock, he may consider taking on the next Ask price from the seller. From the point of view of the Level 2 Quotes, technically the number of queue on the Bidders will increase where as the number of Ask on the Seller’s side will decrease.

Eventually during the active market activity, the Bid price level should increase in terms of buyer who has yet got their orders filled. But on the sellers side their asking price are being matched up actively. Since the activity is being computed in real time, the figures move in the matter of split of second.

As time pass by, if the market is Bullish on Stock A, the queue for the Buyer side will expand and the queue on the Seller side will subside. From the perspective of a Trader, the scenario poses a good opportunity to enter along side with the Bulls. Like wise if it happens otherwise, he may consider doing the opposite, the Short.

I did not use tool as the sole decision to trade. I used this tool to time the best entry level and exit level to maximize my return. Normally after doing my fundamental research on a Company, I would then proceed to the price chart to check on the price trend, support and resistance level and also various indicators such as MACD, Stochastic and Price/Volume.

Trading is a complex process which can be simplified when you know how to break it down to parts. Using Level 2 Quotes is one of the important parts to determine whether to make or break in a trade.

Why Level 2 Quotes Are Important In Your Trading Decisions?

 

There is not much understanding about Level 2 Quotes in the form of print. The reason is because of not many retail traders like you and me are being expose to this Level 2 Quotes. The fact is that you won’t know what you don’t know!

The Level 2 Quotes is sometimes known as Level II Quotes or L2Q in abbreviated. To the Professionals traders, the L2Q is no stranger to them. All the Fund Traders and Professional Traders use them to determine their trading decisions. They use it extensively to beat the market every time they place a trade.

How does Level 2 Quotes work? In principle they show the supply and demand of a particular stock. When you enter a ticker in the ticker box in the L2Q, you will be shown the number of buyer at a certain price from the lowest queue to the transacted price.

From the Seller side, it will show how many shares and how much these sellers are willing to part at that price. With this information in hand, you can determine which side is stronger. Usually the side with the most queues will eventually overcome the side with fewer queues.

It works the same way like a tug of war game. If the left side has 30 participants and the right side is with 10 participants with the same average participants’ weight, 99% of the time the left side will trump the right side.

When you have the L2Q along side with you while you trade, you will be able to scan through how many buyers on queue are willing to bid at a price say at 45.88. You will also know how many are bidding for 45.87 and the list goes on and on.

Have you ever notice why stock price keeps falling from the price chart? You will be able to see it very clearly from the Level 2 Quotes. 80.9% of the time, the buyer side of the Quotes show that there are very little buyer where as on the seller side is overwhelming.

Those who use the L2Q will have the advantage; they know that the stock price will keep falling until the buying momentum start to swing in. Until that happen what do you think they will do? They will sell even faster. They will not buy until they have a confirmation form the Level II Quotes that tell them the selling pressure has lost its momentum.

They are just following the momentum to get them the profit!

The Level II Quotes prowess is not being commercialized for the reason that most Professional Traders do not want you to know of its existence. ‘The least the trader knows the better.’ This is a fact. Who would want to have greater competition when they are enjoying less competition?

It may sound unfair but in reality it is. This is how market works. I have stumbled upon this tool last year and I managed to increase my profit substantially by ‘listening to the market’ while I trade.