Rene, if you look at a quote you see the Bid and Ask. But there is more information available to those who subscibe to level 2. Namely, Level 2 lets you see what every broker is bidding and asking. It looks like Island, but shows you the entire market.
Used in conjunction with Time and Sales, level 2 can assist you to determine which way the stock is heading. What is Time and Sales? It is the list of trades that happened in time order showing the time, quantity and price paid for shares. If you notice that trades are happening at the ASK, that means that people are buying. If you notice that brokers start to increase their bid on level 2 and more bidders come in then the ASK will follow suit and raise their prices. Time and Sales will start to show sales at higher prices, of course this means the value of the stock is going up.
For example, I am currently watching TPRO (a potentially hot Y2K stock, see the SI thread). Time and Sales has been showing me that the majority of trades are happening at the ASK. The number of traders willing to sell at the current ASK is decreasing. A bidder just came in and increased the bid by a 1/16, some other bidders just increased their bid a tick behind the new highest bidder. Time and Sales is still showing buys at the ASK. This tells me that there is a good chance that the stock is heading up or at least staying at the ASK.
Note that NYSE and AMEX securities do not use level 2. They are "fairer" markets in that they don't have these middle men (Market Makers) manipulating the price of the stock. Level 2 basically lets you see what the MM's are doing. On NYSE and AMEX, Time and Sales and the current quote are all you need.
I hope the above helps you. As you keep working with it, it will become clearer. One more thing, each stock on NASDAQ has its own behavior and by watching level 2 and Time and Sales you kind of get a feel for how the stock will move over time.
The following link has a useful discussion on using level 2:
daytraders.com
Too, if you want to learn more about TPRO take a look at this very busy thread:
www3.techstocks.com
Take Care,
Jack Zahran |
