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Strategies & Market Trends : The 56 Point TA; Charts With an Attitude
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To: Sergio H who wrote (8214)11/22/1997 9:26:00 PM
From: Esteban  Read Replies (1) of 79519
 
Sergio,

<I really stop and think twice when I see a Level II set up like you described on SRSL> Could you be more specific ? What am I missing? The MMs play a game with each other as well as the traders.>

When I first started using level II my daytrading success ratio dropped dramatically due in part to jumping into what looked like can't lose setups with lots of strength on the bid and just two or three MMs between the ask and 1 point higher. So from the VERY short term perspective of level II (minutes) I learned to be suspicious and usually pass on those "too good" setups and buy balance or even weakness given other paramaters meeting what I was looking for. The exception is when you have witnessed the level II change from a weak setup to a strong one, that's a sign to move fast. If it's just sitting there and you stumble on it, watch out.

Another point which may or may not apply in this case is that when prices fall the level II table shows strength as a result of the change in price. Imagine one MM on the bid, 2 below one level, and a strong showing another level below that. If the first 3 pull their bid the price drops 2 levels and now the inside bid looks very strong with a whole bunch of MMs at that level. If the momentum stops here this looks like a great setup, but the flow is negative.

These are just some observations I've made from watching way too many level II screens. I certainly wouldn't pass on a trade just because the level II looks too good, but I also wouldn't enter it based on a great setup unless I had watched the setup develop from positive momentum.

Esteban
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