Monday, November 27, 2006

Reading Nasdaq Level II Quotes

I have sometimes used Nasdaq Level II quotes to super fine tune an entry or exit, though it is mind numbing to stare at those screens for any length of time. So far, how I interpret the Level II quotes has mostly been improvisational, but after watching it for a while, I can see how the market makers could play games with this stuff, by bluffing a bid/ask price in the second tier and quickly retracting it -- to make it look like a large "hidden" order that someone wants to sneak into the market to stay under retail traders' price alert radars.

I found a couple interesting forum articles that go a little bit deeper into that:
So far from what I've seen, imbalances over bid/ask sizes do generally play out as support/resistance, respectively. But the quotes changes so fast that it's hard to get a clear read on its significance. The best you could do is squeeze out a few extra ticks for an entry/exit or scalp trade. It would help lower risk, but it also seems like a ton of extra work. Not sure if this is really worth getting into. Plenty of people seem to become successful traders without Level II.


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