Trader Education – Level 2 Quotes

Trader PreparationIn our previous post we discussed the bid and ask price that makeup a stock quote.  Now let’s take our day trader knowledge the next step and discuss the level 2 quote box.  The bottom line with level 2 quotes is that we receive more information about the bids and offers on a given stock.   We can see what exchange is handling them and the size of them.  Unlike with just a regular level 1 quote we see more than just the best current bid and ask, we see the one after that and the one after that.

Level 2 Quote

 

Looking at the example above  we can see each lines list the exchange or market maker that is bidding or offering stock.

It shows how many share they are willing to buy or sell at each price level. This additional info is good to have because it gives us an idea of what kind of liquidity is out there for each price level.

For example, the first line of the bid shows 200 shares being offered through the pacific exchange (PSEX) . Also, note the level 2 shows the amount of shares available in hundredths so just tack on two zeroes to whatever is shown.  We see at 30.79 there is only a total of 400 shares being bid to purchase GM.  200 from PSEX and 200 from ISE.  If no additional bids come in at 30.79 or higher by the time these two orders are fulfilled then the best bid would then drop to 30.78.  There are 8,900 shares being bid for purchase at that price, a much more substantial amount.

This additional information provides us insight into the flow of a stock and where short-term support and resistance may lye just from the sheer size of a bid or ask sitting out there.  Understanding level 2 quotes and interpreting them to better position your trades are two different animals though.

To get a full grasp of how to use level 2 quotes to improve your trading I suggest sign up for the active trading blueprint.  Sign up here – ACTIVE TRADING BLUEPRINT

Remember, “Victory Loves Preparation”

About the Author

ScaredyCatGuide was borne from my own experience and growth as an investor. All of these lessons I now share here with you. Shake that inner scaredy cat holding you back from your financial goals! Come take this journey toward a better financial life. Your scaredycatguide, Mitchell Jaworski

Leave a Reply 3 comments

William Owen Reply

I do not know why I didn’t think of it before, but it will also show us where pauses and or replacements will occur during the day. For instance, if we went short on a good signal all we have to do is look at high volume bid orders to get a good idea of where pauses and or replacements will occur.

    Passion4Trading Reply

    Be very careful with Level 2–lots od deceiving smoke and mirrors shenanigans take olace here–and frankly its just not that reliable of an odds enhancer. In comtrast– TIME AND SALES a TOTALLY DIFFERENT STORY–the purest form of forward looking indication of likely future price direction.

Mitchell Jaworski Reply

Agreed, time and sales is very important. That can and will be a post in and of itself.

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