In the examples of DPLS below, we will cover a recent OTC Breakout and OTC Panic pattern. It's not 100% accurate, but it will give a good idea of liquidity. To calculate dollar volume I will take the average price of shares traded that day X the amount of shares traded. For the average OTC stock I trade, their dollar volume ranges from $1 million to $25 million, whereas a Nasdaq will have 5x to 100x more $ volume. Unlike their counterparts, OTC stocks are much less liquid. It is much easier to see the tug and pull of the Level 2 on OTC companies than listed, especially in times of volatility. So much of this article is for OTC traders.įor OTC trading, the Level 2 can sometimes be everything, or the difference between a successful trade and a failed one. It's not impossible to read, it's just much harder than an OTC’s level 2. However, I will use key price levels, support, resistance, and other technical indicators along with watching Level 2 to judge my entries and exits. If you need an example just look at any large publicly traded company’s Level 2 during market hours. 10-.20 cents and then recover back in seconds with block buyers/sellers constantly moving stock. Listed companies trade much more volume than any OTC company, so orders are flying everywhere constantly. What are the differences in Level 2 use for Listed and OTC companies?įor listed companies, I have a harder time reading Level 2 and Time and Sales. OTC stocks trade via dealer network instead of a centralized exchange. Over-The-Counter(OTC) Exchange: Typically smaller companies that cannot meet listing requirements of more formal exchanges. Listed Exchange: A company that has met certain requirements and follows rules of the exchange, typically larger in size and more reputable. You give the market maker a range to buy or sell your shares, limiting the probability of execution, but guaranteeing the price you want. Limit Order: an order that guarantees a price, but not an execution. You give market makers the right to buy or sell your shares at any price, you just want to get filled. Market Order: an order that guarantees an execution but not a price. If you see prints going through on the Time & Sales, but bids keep refreshing/coming back, you can assume that bids are “soaking” up market orders Soaking: when a market maker begins accumulating or selling more shares then they are showing on the level 2 screen. Resistance: A price where a wall of sellers come in(Roof)īlock: a large position size sitting on the either the bid/ask Support: A price where a wall of buyers step in(Floor) Level 3 Data: An even more detailed order book showing every bid and ask price and other information only seen by subscribing market makers. Level 2 data will have 5-10 orders posted. Level 1 Data: will provide only the best bid and ask on each side along with size and market maker. Large positions moved in either direction will initiate a highlighted backdrop like the ones seen at 4:00:31. It shows the time of the transaction, the price, and size of shares transacted.Orders highlighted in red letters typically mean someone is selling onto the bid, while green letters means someone is buying the ask on level 2. Time and Sales shows orders from the Level 2 that have been agreed upon.
Time&Sales: Time and Sales is shown on the left side of the image above.
Market Maker: An individual or firm who actively quotes two-sided markets in a security providing buy and sell orders along with size.The most common type of market maker is a broker house that facilitates these buy and sell transactions in an effort to keep financial markets stable.(On the picture, the Market Makers are underneath MMID… INTL,GTSM,CSTI, are some, CDEL=Citadel Securities,ETRF=Etrade) Spread: The difference between the bid and the ask, what the Market Maker makes for facilitating the transaction.
This is the right side of the Level 2 data shown above(yellow circle). This is the left side of the Level 2 data shown above(green circle).Īsk: The price a seller is willing to sell their shares for. These perks of level 2 offer an edge to day trading that I hope I can help exploit.įirst we must walk through some common terms:īid: The price a buyer is willing to pay for a stock. The orders show the market maker, price and size of position of both bid and ask. It is a broader range of information than Level 1 data, showing you the orders that have been placed and waiting to be filled. Level 2 data gives access to the live order book (also known as market depth) that underlies a stocks price.