is Level 2 accurate or just random

[Sweden 2]

can you guys check these 2 pics of level2 and tell me why the price didnt went higher with 4M shares on the ask.

[Brendon 146]

Well my guess is 2 scenarios could of occurred here, 1 is those orders were very close to the current ASK price, which could present a wall (meaning the order could not be fully filled and the price could not bust on up). In the classes and the L2 video by Carlos the examples were large ASKs a little further away from the current price, thus acting as a potential 'magnet' for the price to test. Those examples with orders a little further away but not too far would be the best indicators on the L2.

The 2nd scenario is that you have to watch those orders to see if they are being hit (filled) or rejected real-time. The sellers of the order could have jumped to the BID side if it was not getting filled. The float is 642.36M which is quite large, and sometimes it takes very large orders to move the price. If the order is being bought up real fast then the price will pop, if not, it was rejected. But remember that large orders on the L2 are just indicators, there is no guarantee they do what you think they will, you need to watch everything at once, including Volume and significant price levels, the PDC level was resistance in your example. Lastly, looking at the Vol, it looks like those orders could have been pulled out and were never filled nor jumped to the BID side. A lot of times that happens, orders are cancelled, even that close to the current BID/ASK. 

 

Remember Trading is a probability type profession, there is no A+B=C to make a trade work out, it could be A=B or A+B+C+D+E=F and work out or not. It's more an IF THEN=MAYBE.  

Edited October 31, 2019 by Brendon

[Sweden 2]

Thank you Brendon

[James H. 14]

Not all large orders on Level II are buyable or sellable. For example, when a large order appears on the ASK, it could mean two possible scenarios.

1) Traders are mostly getting short
2) Traders are mostly taking profits.

If traders are going short and the price continues to move up, anticipate a short squeeze. If traders are mostly taking profits, expect a pull back and maybe a retest at that price. If the stock starts to form a double top, expect a temporary collapse because those traders who missed the first profit take opportunity will start to aggressively take profits the next time around.

If a stock GAPS up and big ASKs appear, traders are almost always taking profits. Since it's gapping up, the stock will appear on trader's scanners, so the buying pressure (ASK+) may break the selling pressure (BID-).

If the big ASK starts decreasing in size rapidly, and the time/sale starts to accelerate with green/white prints, the bulls are winning. If the big ASK starts decreasing in size but time/size starts to produce a checkerboard pattern of red, white and green, I would not enter. It's the opposite when stocks are gapping down. 

The time of the day also matters. In the opening, a big ASK normally means traders are passively taking profit. If traders are exiting a losing trade from a short or aggressively buying (ASK+), the price action will mostly appear on the tape, time/sale.

If the stock GAPs up and big BIDs appears on the Level II, traders are scaling into a long so expect a temporarily pull back into the gap before the price launches up. If the price pulls back into the gap, the price may collapse through the support areas as traders stops are hit. Once again, watch the tape for the acceleration of red/green or checkerboard pattern. In this case, since traders are going long already, the checkerboard pattern may signal the end to the downtrend.

Another thing to watch are the ASK and BID levels. If the BID levels are increasing across the board by the second, there is huge buying pressure (BID+). If the ASK levels are decreasing across the board, there is huge selling pressure (ASK-).

If a big ASK or BID appears about 1 hour after the open, it is almost always traders taking profit or scaling into the opposite direction (Big BID scaling long, Big ASK scaling short). Just remember, when a big ASK breaks, traders going short are trapped. When shorts are trapped, the price doesn't immediately move up. Watch the tape as the price moves up and starts to approach key resistance areas. If the tape starts to accelerate, the shorts are starting to cover aggressively.

For example, a stock has been trending downward, consolidates at a price, and a big ASK appears and breaks. If the price continues to step up towards a key resistance, the tape will accelerate green, and several bull flags will start to form. Those bull flags are the result of shorts getting stopped out on the way up, short squeeze. If a stock has been trending downward and start consolidating at a price (same scenario), big BID appear and breaks. Watch the tape, if it accelerate in green, the stock is going to enter a pull back due to aggressive covering. If the tape accelerates in red, traders are shorting or selling off aggressively. This is neutral, because a sell off could cause the price to drop more, or traders going short could cause a short squeeze. 

Big ASK/BID can have gravity, because when traders see a big ASK on level II, they start buying which causes the price to move up. As the price move up, it triggers a short squeeze. Same for big BIDs, traders start selling into the bids triggering a massive sell off. This is why adding liquidity to the market can help attract new buyers at your price.

1. Gap Up. Big ASKs = 1) Passive profit taking or 2) Passively scaling into a short. Strategy, find a key resistance above the price and watch the tape.
2. Gap Down. Big BIDs = 2) Passive profit taking or Passively scaling into a long. Strategy, find a key support below the price and watch the tape.
3. Gap Up, Big BIDs/Gap Down, Big Asks. respectfully. = Neutral. But, expect a pullback into the gap. Strategy, in the pull back, watch the tape at the support/resistance for clues of continuation. If the tape starts to signal a checker board, and there is a high chance the price may do a red to green or the stock will start moving side ways. Strategy, wait for the tape signal at the key support and resistance.
4. Big Asks, Tape ASK+ prints. 1) Aggressive buying or 2) Aggressive covering. Strategy, watch tape at key resistance for continuation.
5. Big Bids, Tape BID- prints. 1) Aggressive shorting or 2) Aggressive sell off. Strategy, watch tape at key support for continuation.
6. Big Asks/Bids, Tape checker board prints. The price may have hit a temporarily bottom. Strategy, look at the time, if past 10am. Look for a reversal opportunity.

This information is mostly my theories and interpretations of how I think the market works. Practicing level II correctly is tough because the tape signals will appear at the support/resistance. During high volume, DAS Trader Pro will flush the tape of old quotes causing it to flicker. I found that keeping track of the price before the tape flickers helps to identify an aggressive buy or sell. Practicing is tough because your orders can affect the price action.

For example, if you identify a big BID that breaks, and the price continues to decrease towards a possible support. At that support, if the Level II depth becomes thin enough, the self fulfilling prophecy still may not occur, unless you or other traders enter the trade.

Edited November 14, 2019 by James H.