eye to see what thebehavior of a major market maker |s in the stock you are following.
2 Allthe same daytrading guidelines apply, eg cont go long during lunch, use small stops, try to stayahead of the crowd by using your charts and T&.S patterns to verify entry and exit points
3 | have found it extremely helotul to identify the major market makers in my particular stock, using thewww nasdaqtrader.com link (see front page www.trainindaloha.com link for "Identify the naz ax’).
4. Once | have narrowed it down to whichever one is playing my stock the most that day, | will look forhigh-opportunity profitable times to play the stock, such as the 70.30 naz bounce on a down day.
5. Recognizing net buying ys. selling is a fairly difficult skill to master, at least as hard as learning how to kyplay Monopoly. So spend at least as much time, 3-4 concentrated hours on a single stock, to try andidentify net buying and selling using your level 2 screen and t&s for the market maker you believe isthe ax, It may take a few times to correctly identify who's moving the stock. In fact, it will probably takeyou a number of weeks to begin to get good atit. That's ok, it's not an easy skill to master. Butmaster it you must if you are to do this for a living.
Notes On Daytrading:
I don't sugarcoat daytrading or spout vague warnings about risk management I'm preparing you tosucceed at this, by telling you the things other people do not. Itis a job, and it takes work. The good thingabout This particular job is that you can make a lot of wealth by daing it correctly.
But, it takes more work than most are willing to putin, so they "dabble", get lucky now and then, and end up.leaving the casino broke. To succeed at daytrading, you must be willing to work exceptionally hard, andmaster many new skills. Look atit like a degree program, and prepare yourself as professionals do. Readthe market maker info on the Workstation 2 page links (the pdf files}
Realize what you're into here ‘You set your own odds in this casino, and every one of the skills you masterat DTU should help you become more effective at learning how to daytrade for a living. | am giving youmore advanced Information than any other daytracing seminarfbook other resource provides (that I'maware of}, because itis whatis needed to honestly, realistically succeed at this
ily role here is to be a coach and an armorer, giving you the defensive and offensive trading weapons,
skills and signals you need to stay ahead in this game. It does teke hard work, but at least you can really befree of a day Job, live anywhere you want, and have what you want If you succeed at this le
=a Reed eie eceettModule Comprehensive Level 2 hading lechniques: @PREVIOUS NEXTTwo
   
Back toMODULE 2« When to enter and exit trades based on Level 2 signals@ Main Points:. ion to providing insight regarding market maker actwily in @ stock, Level 2 should be» help you time your “scalp” trade entries and exits. mung again that you should Not us ? alone for your trading decisions,
                   
 
96 IMpressions of Support an
chants
   
   
  
Factors to
5, example eg
e This lesson is designed to helphowto time yet can o
    
you develop two additional Level 2? daytrad
yifyving "high-p
  
  
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Timing Your Trade Entries/Exits Using Level 2
Timing Your Trade Entries/Exits Using Level 2
txemples:
Situations to avoid buying into:
. [mmo [eid [| mwio [ask | a. [=UAs we mentioned previously, the i“tape is king", not level 2 bands, ihowever we can at least identifydanger signs on Level 2 to avoidbuying into
#1) "Wall of Sellers at the Inside" - arcommon sense, if you have manysellers to go through and you'rebuying long this is a no-no. Pa ee TYConversely, this is a terrific shortopportunity (if you can get an uptick)
#2) Indeterminate/low-percentage
leve! 2: IFyour t&$ and charts are not AMZN - 9178 b 9178 a 92 10x27 10.5M 14:50giving you a clear direction and L2 [m. [bid [B.[M. [Ak [A[-]has an approximately equal number l
of buyers/sellers (or within 10% ofbeing equal}, avoid entering 4 trade.
Again, you only wantto enterdaytrades on "high-percentageopportunities", not guesses.
 
Keys to Success in Timing Level 2Trades:Daytrader Timing Plays: Regular ho-hur trading with Level 2: let's look at themechanics of using it correcly to timeentries and exits
Timing your Entries: Again there'stwo times you want to buy on breakoutsand on strong boitorn bounces. You seethose two on your one-minute charts.
Timing entries with level 2 - here's sometips I've found helpful:
1 The inside bid/ask ratio of marketmakers and ECNs is important fortiming when you buy or |nitate a short.Hawing one or more of the 4heavyweight mm's (MSCO MLCOSBSH GSCO)} on the inside is a "stronghand" vs. ECNs only. In this example,you see both SBSH and GSCO on thebid with only ECNs (ISLD/INCA) and aweak mm bid (MONT at 1} on the ask.This is very bullish
(Unless, of course, T&S is telling youdifferently due to mm's disquisingorders via ecn routing: eg if you see 30)orders go through at 27 1/4 and INCAdoesnt weaken, then there's a stongseller, another red flag)
Timing your Exits: hen should youoffer stock out at the ask, or even hit thebid to liquidate? Let's look at sometiming indicators. The top L2 NOVLwindow would tell you to sell at 21 7/16If you could, If you were In from earlier,as it's highly unlikely that all the sellerswill liquidate their stock at 21 1/2, so theprice may drop 1-3 spreads, shrinkingyour profit,
Again, use level 2 in moderately! slow-paced stocks to buy at the offer, sell atthe ask whenever possible, so you'renot giving up 2 spreads of profit everytime you buy and sell. Only pay retailwhen the stock is moving against youquickly, and the speed is mostimportant. (in which case you mighteven want to preference an outside-ofthe-market mm at a lower bid price so.you May be able to exit}
In general, exit when T&S tells you thatthere's more sellers than buyers. Lookfor these confirmation signals on Level2
1) The number of marketparticipants (both mms and ECNs)starts to shrink on a) the inside bidand b) the green band (first outside bid
 
2. Buying when the lead seller is done sellingfor now. Let's say some traders are selling viaINCA, and INCA now disappears off your insideask, leaving justISLD and MONT This is 4 goodtire to buy stock, but you must be fast, as the ISLDand MONT sellers will try to pull their affers to sellas well Here's an example of where 4 SOFS buy toMONT would be a good way Lo take his stackbefore he can respond. haha, then the nest thingyou know the stock is trading 27 5/16 x 27 3/8 (thehext major "hurdle" for buyers ta overcome), and ifSBSH/GSCO and others join the bid, making theyellow inside bid width look good, you've got awinner. Set your stop initially at where you boughtin, and trail your Stop Up, exiting with 1/4 - 5/8 profit.
seus el faesiMaket_ SIIB
 
2) The quantity of the lead bidders' size starts toshrink: eg if GSCO's 10 tums into a 6 or a 1 then he'sgoing to disappear, if he's really buying then his 10.would've stayed the same through multiple sellers as seenon t&8, as he refreshes for the tier size.
3) A “wall of sellers" starts to build, for example if yousee either the number of mms increase by 2-3 in eitherthe yellow or green ask column, you should get out fornow. Rernember, you can always buy back in later when itlooks safe.level). Use ihe green band's # ofparticipants as a leading indicator.Example: if (for the SBUX L2 window)both BRUT and STRK disappear andshow up down at 27 1/2
I
4) You see the "ax" or other major mm flip from thebid to the ask. Example: if GSCO jumps over to theyellow ask and 2 more people join him at the bid, youshould hit the bid at 27 5/3 and get outta there now
Always remember When in Doubt, Get OUT! Shakes notwithstanding, you can always re-enteryour position at maybe 1/16th or so higher if you were wrong and it was going your way. | frequently
find myself getting out a "bit sooner" than the crowd does, before the stock drops 1/4 point or
more...it's an instinct that says "nah, they're not buying anymore, it's "iffy", I'm outta there."
 
Remember to use Level 2 45 a secondary decisionsupport tool to help you time exact entries and exits towithin 1/16th; It's a "microscope".
Don't use Level 2 alone to decide whether or not tobuy or sell stock, out rather when (within a 2-minutetimeframe) to buy or sell, after making your initialdecision using T&S, 1-minute chart and overallmarket (or sector) strength and direction. Manytraders misuse level 2
Daytrader High-potential Play #1 - The "Rollup":IF the stock is "breaking out" of a trading range,making a new high, trading actively in one direction,or Making a bounce off a hard selloff:
It's usually safe to buy if t&$ shows all buyers andyou're one of the last ones to buy right before an askprice level disappears off the L2
How it Works: Lets say this NETA used to have 4sellers at 24 3/8, and now traders have bought somuch that there's only the instinet (INCA) seller left,showing an ask size of one or so. If you're fast, youcan "jump on board the last train at the spread” andbuy frorn INCA before the L2 inside goes up a spread(to 24 3/8 bid, 24 7/16 ask). If you time these right,they are usually good for a fast 1-3 spreads profit.Foractive traders with dayirading brokers only-typeplay’)
(As | mentioned before, for moderate or slow-pacedstocks You always want to buy at the bid, sell at theask, this tip 1s for fast moving stocks)
 
ing High-Potential Daytrades using Level 2
NETA SSR era eg‘disappear, buy it and watch the price)eee Bersted
pro oe ne pel
|
tee)ea)This usually works when you're buying ahead of amajor support level (usually at 1/4 1/2 3/4 and whole
numbers} that has a lot of people bidding for thefe nad est Bees
GWST - 349/16 b 34916 a 345910x89 562M 14:51
In the QWST example to the right you see 4 wall of
buyers at 34 1/2. Thus, making a bid at 34 9/16 (or 34 __ — ~19/32 to frontrun DLUP haha) is probably srnart. l els:
Secret fo Scalping wSuppor in Level 2 Daytracing |
When | scalp, (most of my trades are scalps within a20-minute roundtrip) | will use Level 2 walls of supportal the first outside bid (green band} to set my stop.
For example, if | buy at 34 9/16, | would trade this asfollows’ my stop |s at "I'll sell if the wall af buyers at 3441/2 is almost gore". In other words, if | bought at 349/16 and ittrades down, the inside now becomes 341/2 « 34 9/16 and then the green (now yellow) wall ofbidders shrinks down to say 4-5 bidders from it'scurrent 17 then I'll get nervous and probably hit thebid.
 
This is because the stock didn't do what | thought itwould, namely bounce off the 34 1/2 support andclimb higher, to 4 nest resistance of 35, Make sense?
So, my downside is mayde 1/8th of a point. My targetis 7/8, or about a 3/8 profit. |'ll be smart enough to exitthe trade into the buying strength, before it reaches15/16 and fades back to 3/4
So, my downside is maybe 1/8th of a point. My targetis 7/8, or about a 3/8 profil. I'll be smart enough to exitthe trade into the buying strength, before it reaches15/16 and fades back to 3/4.
Of course, if volume picks up a lot then it maycontinue on strongly through whole number resitance,but | don't bet on it. Remember, you can always buyback in later. So, I'll buy here, sell up at 7/8, wait for ashake off 35, then buy backin at 35 1/8, if it goes upthere, That's how to daytrade, folks.
Ok, time to practice’ try papertrading with the above tips; perhaps print this page or surnmarize themain points and see how \t works for the stocks you trade. Rernember to keep an eye on the ratio ofmmm's to ECN's on the inside bid/ask as a key indicator, and that Level 2 is much less useful forstocks that cdo most of their trading through ECNs.
Level 2 is a secondary indicator to use for scalping and precision timing for entries and exits, not amajor decision support tool as to whether you should be buying or selling the stock In the first place.Module Comprehensive Level 2 Trading Techniques: SMPREVIOUS NEXT PeTwo
Back toMODULE 2« Using TA and 3-minute charts with Level 2: the big picture
@ Main Points:
« Level 2 is critical for successfully Dming precise trade erttries and exits, and for followingthe ax for stocks that have an identifiable ‘ax’
e [have found that using a combination of level 2, 1-rinute barfclose line and 5-day 13-minute charts gives me an effective edge in daytrading. As we've learned, you should takea“funnel" approach to daytrading, paying attention to the overall market/sector directionfirst, followed by the individual stock's intraday pnce action and technical incicators, sawinglevel 2 for last to get your “within 3-minute" timing down for when exactly to fire off abuy/sell.
e This lesson will focus on how to use the powerful cornbination of multiple indicators toassist you in making your trade decisions. Note that for Scalping (under 3-10 minuteroundtrips) the Level 2, especially T8S, becomes more important than the charts are;charts are important to determine breakouts and bottom bounces for daytrades that lastfrom 10 minutes to an hour for even longer). Remember that L2 alone is not sufficient (egit's particularly useless for the most actives like WCOM, MSFT and INTC).
New daytraders are advised to maintain positions for from 5 minutes to 2 hours max;intermediatefadvanced daytraders should trade from 10 second - 20 minute roundinptrades. Swing traders that are becoming daytraders are advised to start with overnightholds that are sold premarket or within the first 15-30 minutes of market open. This wellhelp you tighten your trading range down to a faster style. Notice that many profitableopportunities can be had with overnight holds that are sold into the prernarket gap up usinglevel 2, the key is to sell on ISLD if it's within a spread or two of the best bid, but hold off forthe actual open to sell if Level 2 shows ISLD 3 or more spreads away from the best bid,since you can sell to one of the mim's at their bid if they don't drop it immediately on open.
The DTU “Triple Play" Daytrading L2 Setup:
 « And even then, | wouldn't be too sure about this particular stock continuing up.. I'd wait and seewhat SBSH does. Note that it's come up to half of its' tracing range on the 1-minute chart, sodon't buy when a stock is here. NEVER buy a stock that's bounced off the bottom andhas come back up to half the range, the play's probably over and it will just chop aroundhere for awhile. Wait for either a bounce off the bottorn again (2nd bottom), a breakthrough(above the day's high), or a breakdown to short (oelow the previous bottom). Lear this
Consider setting up a similar “triple play" for your stocks; of the three parts the 5-day chartis themost “optional” part of it, as long as you know where the stocks' coming from and have made a note ofthe supportiresistance levels you rnay leave this one out of the equation, If screen space |s limited.
Ata minumum, make sure you have this type of setup available to daytrade with 2 level 2 window, time& sales, and a 1-minute intraday chart. The 5-day is used to help determine how strong the likelinood isof a bounce or a breakout; the 1-day chart doesn't give the perspective that | like to have
For example, NOVL ran up from 20ish to 40 in a matter of days; it was a prime shart candidate righthere (VWhy? Making a lower high on lower volurne after running up 5 points, plus SBSH, the usual ax onNOVL, is a seller, and there's a "wall of sellers" on the L2 ask. Good for 2 1/2 points in 40 minutes
I wouldn't have knowin that if | didn't also have the 5-day chart available, if for instance NOVL had justcropped on bad earnings from 62 to 35 on the open then | would not be nearly as likely to shart it The 5day perspective has been consistently profitable for me.
Knowing where your stock is coming from gives you a pretty good indicator of where itis likely to headover the next couple of days, in addition to intraday scalping and swing trades. This edge will help. It alsohelps you ta set your stops; as | say | recommend 2-3 spread stops in general, at a maximum you woulduse decade supportresistance and 5-day supportresistance levels to help you with your trades.
Co ee | a oe
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ECE ad
 
A Final Reminder, Use Level 2 in conjunction with a "market snapshot" to heloyou nail your pivot points and trades effectively. Below (again) is a "marketsnapshot" | use to keep an eye an the direction of the overall market
| do not fight the market - the market is always right. | don't care What Level2 says, if the market is overall tanking | will not go long a stock, unless there isbreaking news [almost never) Ifthe market is "indeterminate" than | will not entera trade | enter if the market is ok, and the stock is making a pattern | recognizea@s a "high-patential" daytrade, as we have seen in the earlier lessons onbullish/bearish chart patternsOk traders, lets take 4 look:what are these indicatorstelling us?
Lunchtime is about over,overall trend of the marketisdown, we're under theopening, fairly choppy
The bounce seems to bemoderately strong here, asthe composite trend hasreversed above theprevious high at around4066.
Pop Quiz
#1) Do you trade semis($SOX) or nets ($GIN},based on their cornpositecharts to the right? cansmer:
semis are stronger overall, because whenthey bounced in the moming at 12amthey bounced higher than the nets did )
#2) What does the last 5minutes of the $TRING chartat the right tell you?
a) it's bearish for stocks,stocks are dropping
b) it's bullish for stocks,stocks are rising
(answer: the STRING is an inverseindicator, Id be ready to buy stocks sincea drop in the $TRING like this is b) abullish indicator)
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Answer to using 13-minute charts: Knowing that the majority of new traders use 15-minute charts, | can get a 2-minute headstart on the competition to see subtle changes in pots, reversals and breakouts faster by moving to a 13-minute chart.
 Using Time & Sales Soressolly
The Tape 101: What is time and sales? What's it used for?
 
 
Stock ticker a bong time ago (his first big commercial Success). Its
Edison inverted the origi
               
          
   
sactions en, Inape" of yesteryear is r
displays in that show us whenever @
3) alectroni
  
we see both the time that the tr res changed33 AMZN &may be 10200 shares a minute later, at 10.34. And so on thres
     
vutthe trading day
        
We use it to see if trades occur repeatedly at the ask price (
ha buying) or the bid price (a sh, down size of the trades occurring (individuals)
     
   
momentum, or pace oen major pivots, or tuming po
  
Bullish Time & Sales: Going Up!
Bullish T&S Signals:
[AMZN ¥] [Ber Maket *] P| T| PGR« Inthis AMZN chart you can
AMZN + 731346 b 731346 a 737/810x3 172M 10:36 see a string of tradesoff at the ask, 73 7/8. Thistells you that other tradersbelieve the price will go up.and they want to "get onboard" at 73 7/8 before it runsup higher.
  
7
Ifthe majority of trades occuratthe inside ask, the "tradingsentiment" for the stock isbullish for that particularmoment.
 
Bullish Time & Sales: Going Up!
Bullish T&S Signals:
[AMZN =] [et Make | P| T| GR« Inthis AMZN chart you can
AMZN + 731346 b 731346 a 737/810x3 172M 10:36 see a string of trades goingoff at the ask, 73 7/8. Thistells you that other tradersbelieve the price will go up.and they want to "get onboard" at 73 7/8 before it runsup higher.
7
Ifthe majority of trades occuratthe inside ask, the "tradingsentiment" for the stock isbullish for that particularmoment.
 + Inthis DBCC chart you can see a oes | ee voner Systring of trades sain off at the pace ZI |Best Market = | a) okbid, 10 3/4. This tells you that othertraders believe the price will go downand they want to dump it fast.
Even though MVVSE is showing a size50 bid, pay attention to the T&S.Instead; everyone Is selling, soMVVSE will probably stop buying
soon
Play this the samme way you'd play anypattern once you see it, either enter abid at 5/8 if you think that's where itwill bottom (risky), or try to shortit onan uptick if you think it'll continuedown
When you're reading the tape, you can alwayspoe =] fiethekt =] P| 7) EGR play around with cifferent chart layouts, in thisexample | stretched it so you can see exactlyhow bearish the pattern of selling is
 
Now, if everyone and their brother is selling toSBSH and STRK at 90 1/4, the current insidebid, will you try to buy the stock here? | hope not
‘You may want to join the bidders a couple levels
down if you are playing off a pivot point based onyour charts (eg a whole number decacle support
level like 90 for DCLK here, risky though}
In this case I'd enter a bid at 90 and see if theprice comes in; it looks like there's somesupport at 90 (9 bidders, including MLCO andBEST). If, on the way down, though, MLCOfaded his bid lower and a couple other bidderscanceled their bids, I'd also cancel my bid andwait to see a clear pattern of buyingin T&S
You're seeing a few larger trades, like the 9.6one and a few 1K trade, along with someoutside trades at 90 1/8. All fairly bearish Don'tenter a long position here, of course.
Pop Quiz Question, What type of order routingwas responsible for the trades that happended“outside the market" at 90 118? SOES,Selectnet, ARCA, ISLD?
 
Answerpreferenced selecinet omer
How to Trade Blocks andVolume Patterns in Time & Sales
Ok, now that you know the major, obvious trends in Time & Sales, we'll begin looking at specificdaytrading strategies and tips you can use in this (and the next 2) lessons
Volume Buying ona JPutc Sy] JacctMaket ] [P| |T| (GRIN fPIC] [interrsichat =] PI[WS
Pivot Play:
This is the Best bullish [mip [eid [empl ak | a. ~|[Btype of pattern to play. z
What's going on here?
1) Many block trades of 1K -3K shares going off at theask
2) Heavy support at a wholenumber and thin sellers
 
3) Bi ! ikes in th Hopefully, you got in a bit earlier, on the first pivot, when the volume buying spike showed up) Big vol Fee spikes in the inthe 1-minute chart I not, that's ok, there's still "juice" left in this trade. We see a lot of(-minute chart. buyers at 24 1/16 on our time and sales, both a recent volume patter in the chart and block
Obvious Buy Here-Hurry! bee ts
Great, we nailed it! Now PTC +] [eet wane >] P| T| (GR
we're starting to see &mixed pattern on T&S, and itlooks like we have a lot ofsellers at 24 3/8
ETE inera hat Pi[vs
Maybe I'll offer out the the 1Kshares | just bought at 244416 for 24 1/4. Ok, | getfilled and make another$187 in 2 minutes. Repeatmany times a day and makea living daytrading
  
Daytrading Plays: This is a classic textbook buy setup
for a daytrader who scalps. It doesn't get any more Remember, volume | your friend - it's the "vote" of theobyious than this traders atthat moment in time. Watch for blocks (trades of25K shares, usually made by institutional traders) at the bidHint: you see an INCA bid at 24 3/16, this might be some or ask prices to determine what the near term trend may bereal support fram a mm who's parked his bid here, wait to . .see how many shares whoever's anonymously buying wa Your level 2, again, is a secondary tool to help you time theINCA wants to see if there's real support there. Cf course, exact second to "pull the trigger“on your trades. Time andthe same could be said about sellers on ISLD Sales is the “real story of the stock" you must pay attention
toModule Comprehensive Level 2 Trading Techniques: @PREVIOUS NEXTTwo
Back toMODULE 2« Time & Sales part 2: Reading tape speed and momentum
plays@ Main Points:
« One professional tape-reading technique that is not widely known is are the "speedpatterns" and differences in momentum that you can see in T&S before pivots.
« What this means is, while watching time and sales you should be keenly aware of ary speedupin the pace of the trading, especially if trades start to go off faster and faster near a key supportor resistance point. This signals that a breakthough or retracernent is about to occur.
« Except for very slow-moving stocks (which | don't trade}, there is little value in the “time” part oftime and sales prints. What I'm watching is the tape momentum, trades going off at the bid, askor in-between, and the offerfask sizes and new prints that are entered in realtime. Most of thestocks | trade are over 1M shares a day, so trades are continuously going off. The point? IF youcan, take the time off of your t&s ticker, as you see in my examples throughout the coursematerials. The price and quantity is what's relevant, as 1s the momenturn, or timing, which | amtrading with in realtime (so a timestamp 1s meaningless).
This 1s one section | plan to come back with and add screencarn-type mowes to, as itis easierto explain as you watch a tape "in motion". For now, let's leam the strategies:
Reuding the Tape:Speed and Momentum Patterns in Time & Sales
 
Recap: High-Percentage Long =i feettaret =] P| T| SR Jaren =] Jirters | Pllve
Play in Time & Sales
 
 
 
 
   
ATHM + 3233/4 b 331116 a 333/410x18 L28M 10:40From last lesson, we learned thatsetups like this are "gifts" thatshould be played long:
41) almost all traces going off inTime & Sales at the inside ask{bullish}
2) volume picks up at this bottomnear 33 5f8 to 33 3/4
3) 10 30 nasdag bounce is a goodtime to go long
Bid 11/16 or pay up the spread,use 5/8 a5 a stop.
Now, in the example above, would you want to buy if time and sales was going a) faster than it was earlier, as thestock sold off, or b) Slower than it was when the stack was selling off? Hmm?
Answer you want to go in the direction of the tape speed, so you'd want to see the buying in time and sales going offa) Jasierthan it was curing selling Why? Speed and volume = momentum voting by the crawd
Let's think about what's happening - you want to join In on