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proper decision as to how or when to enter or exit a trade.
Here is your Level 2 screen checklist before executing your entry:
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 SPREAD  anything more than 1/8 is the first sign of volatility. While this
should not necessarily stop you from trading a stock, you must be ready for
this larger spread. Do not just look at the inside quotes, look at lower price
levels. How far away are the other quotes?
MARKET MAKERS - Which Market Makers appear to be the aggressive
buyers or sellers in this stock at the present time? Is a group of Market
Makers gathered at a certain price level? Why? Are these same Market
Makers also gathered at an area on the opposite side?
ECN Presence  How active is the Island ECN in this stock? How about
INCA? Some stocks are extremely sensitive to ECN activity. Some other
stocks do not have an active ECN presence  this is common on low volume
stocks. This will help you determine the most appropriate execution method
(such as, SOES, SelectNet Preference, or ECN.)
ECN Size - Beware of large share size (more than a couple of thousand
shares) displayed on INCA. INCA is often used to manipulate temporary
direction. A strong indicator of legitimate INCA size is when INCA orders
continue to chase a stock to higher (or lower) price levels. You can assume the
INCA interest is real when you see INCA bids increasing as the selling price
increases (or vice-versa). ISLD size however is much more reliable. A build
up in ISLD size on the bid side will generally signal a temporary move to the
upside. The opposite is generally true when ISLD size continues to build up
on the ask side.
VOLUME  Too much or too little volume is generally not a good sign.
Although volume should be gauged according to the stock s daily average. If
a particular stock trades 3 to 5 million shares a day, a day where that stock is
traded 10 or 15 million shares would be considered heavy, while less than 1
million would be considered light. The daily average volume can be seen on a
daily chart.
PRINTS  check the prints (actual execution prices on the  time and sales
column to see on which side (bid or ask) of the Level 2 screen is trading.
Correlate this with Market Makers and/or ECN s currently present on the
inside quotes.
+ Or  Indicator - your first sign of a temporary trend or relative strength. A
sign of risk is present when a stock is positive or negative by a large amount
(typically more than a few points)  check your charts then.
OPEN PRICE  Check to determine if the stock is trading above or below the
opening price. This is another temporary sign of trend.
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 HIGH and LOW PRICES  Check to see if the stock is trading closer to the
high or the low for the day.
Figure 4-1: L2 showing temporary Bid side support
Note that the Bid side is showing accumulation of Market Makers and ECN s at lesser
price levels than on the Ask side. This is typical of down trending stocks hitting support
 Support is reflected by the Bid Side activity  if you are going long for a scalp on this
stock at the 5/8, you can be confident to exit  at worst!- at the ½ in case the trade goes
against your favor. Note that you are likely bucking the trend here.
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Figure 4-2: DANGER ZONE
Occasionally, a  Comet visits the Stock Market. A stock experiencing wild volatility,
while entertaining, is a danger zone that should generally be avoided especially by the
novice. Bring up your checklist and determine the volatility just by looking at this L2
screen example. In real-time, if you come across this, watch it, get entertained, and
move on to real trades.
Observing Market Maker & ECN positioning
Perhaps the most difficult skill to acquire in NASDAQ Direct Electronic Trading is
observing Market Maker and ECN activity because it is electronic. It may take some
time for the Novice Trader to develop the  eye for interpreting Market Maker and
ECN positioning. Even the most astute of Direct Electronic Traders is not immune to
misinterpreting their movements. The only way to learn this well is by proper
observation (particularly right before big moves) and experience. Although some
activity is blatantly obvious, such as a Market Maker or ECN desperately buying or
selling (chasing) regardless of price, taking notice of subtleties in their activity often
lead to good price movements. You will correlate the activity within the box to prints,
recent price activity, market and sector conditions and, of course, the trend. Remember,
however, that observing the Market Makers and ECN s is merely one of the many
indicators in your trade. Do not forget other important aspects of the trade such as
market and sector conditions and the stock s recent price activity.
Here is a list of tips to guide the new trader when learning the Level 2 screen:
" Look for which Market Maker is the aggressor for the day.
" Correlate with prints.
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" Take note if INCA is showing a size of 10 (actually 1,000 shares) and is
constantly refreshing after being hit.
" Larger order size on the ISLD is a good indicator. Size on INCA is often
misleading.
" On wider spread stocks that are consolidating, take note of INCA or a Market
Maker jumping to the inside bid or ask (correlate this with recent price
action!)
" Watch GSCO. Why? Because everyone watches him. He may be an aggressor,
or he may be playing decoy to create opposite momentum. The GSCO trader
knows that many Direct Electronic Traders watch him. He will use this to his
full advantage. Use him to give you an advantage in getting the best price for
your trade.
" The dealer market is by no means simple. It is filled with elaborate traps for
even the most experienced traders. Just imagine what can happen to a novice!
Watch every step of your trade.
" The NASDAQ market is prime territory to make a lot of money fast. Keep in
mind, however, that the possible reward should exceed risk by a factor of two
or three in every trade. If the trader is reckless and unprepared, the NASDAQ
it is also prime territory to loose a lot of money even faster.
" When a stock is running to the upside, are the Market Makers simply raising
the Ask. Look at the Bid as well. On a runaway stock, a widening spread is a
terrifying sight. They must be just as aggressive on the Bid side! Remember [ Pobierz całość w formacie PDF ]