Back in the good old days, all you needed was a reliable level II connection with time & sale info and a few big blocks to go through over the ask price on a decent volume stock and you pretty much could get a window into the type of order flow that was coming in at that moment in time. Now it seems, that this time & sale info must be delayed or something has changed since decimals. Case & point -- This AM I was watching JNPR on level II. It was inching over an hour at the $11.25ish mark. Finally a little breath picked up and one particluar position of 30000 shares went through .05 above the ask @ $11.32. Literally within three seconds, the bid collapsed and INCA jumped all over the ask pushing the price down to $11.22ish. No shares other than 100's exchanged hands....it was all hand slapping for the .10 drop....... Within a half hour, the stock broke $11.00 as the Nasdaq got much weaker falling in the red double digits. Is this a case of a dumb trader making a move, or was that 30000 block held and bought say 5 minutes earlier in reality and we are not getting the real deal??? I have noticed this kind of thing allot lately. What gives here?? THe key to making speedy intraday trades is having a gauge on order flow. Anyone have some additional indicators that they particularly like and would care to share?? And any feedback on the level II would be appreciated also.........................
Chances are that a Market Maker was working a buy order for an institutional client. The Market Maker will accumulate shares by bidding for small amounts and occasionally taking some offers, and when he accumulates enough (like 30,000 shares) he will now "print" it, meaning he will now sell it to the client at a higher price. The difference between the average price of the shares accumulated and the price sold to the client is the commission that the firm makes. There is no time limit for the Market Maker to do this, but they usually want to print blocks of 10,000 to 50,000 (depending on the liquidity of the security) as soon as possible because a client doesn't want to get a fill of 30,000 shares @ $11.32 when the stock is trading @ $10.95. Darren
I've also been given to understand that such very large outside-the-market transactions are given preference near the end of the hour.
sorry for the unclarity. this was explained to me a long time ago, so you'll have to excuse me if I get a little fuzzy. Basically, the import was that under normal conditions, a majority of large outside-the-market orders will get processed in the last few minutes of any given hour during the day. Typically, you'd see them on T&S, but not on L2. The same guy who explained this to me (he works for the "opposition") also claimed that a software peculiarity often results in MM's flashing much bigger size than they exactly intend - they don't mind showing it, but it's not something purposeful. I'm not much of an L2/T&S trader (I suppose that's obvious by now), so I've let the details get a little hazy. Apologies for the BS "contribution." I'll try to get the guy who ran through it for me to do it again.
Nice analysis. Its amazing what kind of loop you can get into by staring at Level II screens all day. Here you think you might see some blocks printing through .05 above the best ask-- maybe the Nasdaq is upticking -- so you jump in and buy something.......in reality an order or some other agenda was being filled and now you basicaly get in at the wrong time. Best time of the day to "jump in" for a ride so to speak could very well be @ close. Did you see EXPE today?? all day long I saw the bid fade on $79.50ish after a HUGE runup of $8 per share+ . It looked as if it ran out of steam barely holding onto $79.....then into the close--people piled on literally pushing it to the highs of the day >$80 & closing there. It will be intersting to see tomorrow if we get a gap up open. Think today was a nice short squeeze also...everyone and their brother has been going short here with a very small float......By the way DeeMan -- anymore insights or tricks you care to share with respect to the L2 screen let me know......I have not scalped in three years -- recently thinking of making a comeback. It seems much more difficult at this point in time.............
I wish I did have more insight in using Level 2 to a more profitable degree but unfortunately I don't (I trade listed stocks exclusively for the moment). What I have found is that I can only determine the VERY short term momentum, which on average will net me only a few cents, and when I am wrong will cost me at least twice that (Not the risk/reward I am looking for). With the ECN's, what you see is what you get. Unfortunately, anybody can flash a large offer or bid for a brief second (at the risk of getting executed) and scare traders out of their positions. Since using Level 2 tends to put a trader in a "reactionary" mode, it's often hard to know whether a large bid/offer on an ECN is real or fake, and I find it's very easy to get shaken out of a position. Watching the major players (Market Makers) can be used to your advantage if you notice one accumulating shares or holding the offer. Unfortunately, they use ECN's too (usually INCA) and can mask their intentions through them. It does help to know who the "ax" is in each stock (it sometimes changes from day to day) if the stock you are trading is not very liquid. Since last December I have been trading Listed stocks exclusively (small\mid caps) and have performed much better and more consistently than with the OTC stocks. I'm not suggesting that one market is better than the other, it's just that I perform better with the NYSE stocks. I do know some traders who trade Nasdaq stocks off Level 2 and do very well, yet interestingly enough most of their decisions are based more on the Nasdaq futures than on Level 2. Darren
your views on L2 trading and the 0.05 cent print are quite sound. Another possibility in terms of large block trades is if you wanted to move a large order, you would more than likely get your full fill at a price outside the market by preferncing a MM. That would explain the 5 cent diff. L2 trading has gotten more difficult over the years, and with Supermontage coming with only 5 levels displayed it will likely get more difficult. Lot's of shakeouts all the time. Lots of jokers posting and cancelling, but you get to ignore them after a while. And more traders are reactionary. My best trading is when i ignore the L2, but it is handy in some cases. Some good and some bad, like all things in life Cheers