in this episode I'm going to share with you the three steps that I took that made reading level two easier when I got started I found it very difficult to understand what was going on when I was reading level two the numbers are moving like crazy I didn't know what to look at and I had a really hard time kind of connecting the change in the numbers from what was happening in the market and certainly what was going to happen next But ultimately I've now gotten to a point where I've gotten really good at reading the tape so much so that I would say level to and tape reading give me an edge as a Trader and I could not trade without them to help you get better at reading the tape I'm going to walk you through the steps that you can take right now in your own trading as always the goal of these classes is to support you in your journey of learning how to become a Trader so I hope you hit that thumbs up I hope you subscribe the channel and let's go ahead and Dive Right In so I've got the S&P 500 up here but we could just as easily look at uh Bitcoin we could look at uh Futures commodity like gold or natural gas we could look at an individual stock it doesn't matter um one of the things that's kind of interesting is that um when I first started trading I had uh two different Brokers that I was kind of trying to figure out which one I preferred uh E Trade and thinker swim and thinker swim continues to have a terrible default way of displaying level two it's almost boggles my mind that they haven't done anything to make it better in more than a decade but ER trade by default has a much cleaner display for the level two data which means you can visualize Market depth better and so I would probably attribute part of the reason that I was able to pick up learning how to read the tape and read level two earlier was because of the the default setting of E Trade so I'm going to help you kind of um set up your level two in a similar way so it's easier for you to read okay so uh in the background here this is my these are my charts these are my scanners this is the platform that I bu built out I have a development team that built this out for me this is available for warrior Pro members uh this right here is a brokerage account um and this is a very standard kind of presentation of level two data what you're seeing is the depth of the market now if you pulled up just a quote on I don't know on on the Internet or something for a stock what you would typically actually see is just the last price uh you would only see the last price but what you might see for level one data is um the best bid and the best offer so that would be 50520 by 50521 right this is the bid and this is the offer now for those of you guys that need a crash course on level two level two is the depth of the market level one is just the first tier the first row essentially which is showing us um the market maker so nsdq for instance for Nasdaq priced $552 order size let's say 600 shares and then the that's the the highest price buyer okay now the lowest price seller let's just say nsdq also on NASDAQ price 50522 size 600 shares all right so this has a 1-cent spread between the best buyer and the lowest price seller now for those that aren't totally familiar with the way market dynamics work when you have someone here who posts an order to sell shares they post an order to sell their shares 600 at 50522 now if they really wanted to get out they could just sell 600 shares to this buyer right here at 50521 why wouldn't they do that who cares about one cent there's two primary reasons that someone might choose not to do that the first is because well they actually are selling a bigger position than just the 600 shares and they're doing what's called an iceberg order where it appears to be 600 but it's actually a much bigger order there and so they're just going to keep letting people buy shares from them to slowly sell all those shares that are part of the iceberg and they know that if they sold on the bid since they're selling more than 600 shares they would have to keep searching for the next buyer which might be 50518 50515 and so on and so forth so if they they press the sell button they would end up getting filled at a lower price so they're just going to sit here on the offer and wait for people to come and buy their shares so number one the possibility of why you would sell in the ask is because you've got a huge order and you don't want to hit the bid you may or may not have an iceberg number two is when you sell on the offer if you are an Institutional Trader or your a professional Trader using uh direct access software you actually get paid a little bit of money from the exchanges the exchanges NASDAQ will actually pay you for trading as long as you execute your order by sitting and waiting so if you put your order to sell on the offer and you sit and wait for it to get filled you'll actually make a little bit of money now the amount of money you make is about uh uh it's about a 15th of a penny it's not much to be honest on 10,000 shares you'd make 15 bucks so it really doesn't add up in a big way but for insti institutional traders who are trading millions of shares a day that can add up and that's the same with those um direct access Brokers where if you buy but you put your order on the bid and wait for someone to sell you shares you would again make about a 15th of a penny so again it's it's a relatively small amount of money but those are two reasons why people um might sell on the ask instead of just uh hit the bid and and I guess maybe the the third reason would would be just simply to get the very best price possible although to get this best price you have to be patient because right now there's a buyer at 50521 who is happy to buy your shares so you could just sell to him and be out yeah it costs you one penny but you get an instant exit Okay so regardless however you decide you want to route your orders this is what we're looking at when we look at level two we're seeing the market makers the price the share size on the bid mark Market maker price share size on the offer but level one is just that first uh the first depth of the market level one is the first row and level two we call it level two and some people call it Market depth because it just shows you all of the depth of the market and you could scroll this down and and you could change your settings so you see even more orders in here if you wanted to but one of the problems um that I have is that when it's all a blue background like this or whatever the color background is it's very hard to sort of differentiate what's happening so right now I'm seeing all of this is moving around NASDAQ ARCA bats these are all moving around the prices are moving around the sizes are moving around like this feels very jumbled so the first thing that I want to do is I want to color each one of these rows based on the prices so what we're going to do is we're going to go into our settings we're going to go to design we're going to go to uh the layout and I'm going to change this so I'm going actually um copy and paste the color here this is I already had this ready to go so it's it's all set up for me I'm going to make it just a little bit brighter and then I'm going to do the same thing here copy paste I'm going to change this here like that make it just a little bit brighter you could pop and then we're going to do the same thing here copy paste oops that's fine turn that off there we go and we're going to do it for this tier as well we're going to copy paste the color and this is going to make a huge difference um when we save this setting and we open it up all right and I'll just make that just a smidge brighter so now watch watch this wow wow now we're really looking at something very different right am I right so I'm just going to do a screen grab here um just like this just to sort of pause the screen for a moment okay so what are we working with here what you're seeing is the way this is coloring is the first level is is green the first level the first depth of the market is green so what does everything and green have in common these are all at the same price and these are all at the same price the next the next level down which is the second level is all in red so these all show and you could choose any colors you want but just important to differentiate them so instead of it all being the same you can separate how many buyers are at the first tier and how many sellers at the first tier because this is an instant reflection of supply and demand and whether or not there are more buyers or there are more sellers right this is showing us the balance of the market this is the depth of the market so by coloring it now I can immediately see that we actually have more sellers right here in this moment than we have buyers now if I pulled up my chart and I saw a bearish chart pattern on the Candlestick charts then this would be reaffirming what I'm already seeing on the chart it's important to note that level two by itself is never going to be an indicator to buy or sell level two Works in conjunction with already having a Candlestick pattern that you're dialed in on that you like and making sure obviously you're trading um a security or an instrument that you like that is is worth focusing on so if you're curious about my process of stock selection I have episodes that focus on that but when it comes to reading level two the first step is to change the coloring so by changing the coloring now this is much easier to read and again we could scroll this uh open this up a little bit more pull it down oops sorry so we'll just click here drag it down and now you see each of these tiers now when we got fur when we're further away from the first top three tiers you know it's okay if all of those are just the same color that I don't really care about as much but I really want to see and be able to differentiate on the very top because this shows me the stacks of the buyers and the sellers and although it is moving very quickly it may be hard for you to kind of understand what's happening this is going to be the way you'll want to visualize it but we still have a problem these numbers they're moving around but there's a little bit of a lack of context and the lack of context that we have right now is it's not clear like are any orders actually being placed is anyone even buying or selling or these just orders are they just moving like you know automatically or somehow magically from some algorithm the only clue we have is that we could see the volume is increasing right here but what I think is critically important is to pair your level two window with a time and sales window by pairing it with a time and sales window now you're seeing actual orders that are going through the market and these orders that are going through the market are what's actually creating the changes on the level two so what I'm looking at what my eye is always looking at is the ask price right here this is where my eye is always focused right here the top you know the very top of level two on the ask and then I'm glancing here in my peripheral vision I can clearly see stretch you know these swaths of red and green what I know is that when we see red going through those are transactions that are occurring at the bid price those are people who are actively selling to buyers on the bid now remember whenever there's a seller someone's buying those shares whenever there's a buyer someone's selling those shares but it's colored red or green based on what price of transaction occurs at Green are orders that occur on the offer red are orders that occur on the bid white are orders that occur between the spread so with my eye right here we're seeing this popping up right here just uh we had a little burst of green and we're seeing it kind of surging up now as we came up here up to this level now we're seeing some bursts of selling going through but there's a little bit more buying right there another little burst of buying and so this is now sort of putting two pieces together if you looking at just the the time in sales just the tape without the level two well this is also this is only this is historical in a sense it's only showing you what has already happened so these are prints that have just gone through the level two isn't showing you the past it's showing you the current orders which helps you understand the imbalance between supply and demand and where the market is going so these two couple together very nicely and and really they're Inseparable they have to be viewed together because this now let's just say for instance that we were seeing a ton of green here but the price was not moving up what would that tell us that would tell us that there's an iceberg order there's a hidden seller someone is unloading a lot of shares people are buying but the price isn't breaking so this would be especially notable um if we saw only 600 shares being displayed but then on the tape on the level two or on the time in sales we had just seen 100,000 shares of buy orders go through that's the sure sign that there's a hidden seller right here you would never be able to visualize hidden buyers or hidden sellers if you do not also have the time in sales you have to have them together to be able to see this if you have just the time in sales you'll have no idea there's a hidden buyer or seller if you have just the level two you won't be able to see it either you need them both so they really they're C they're separate windows but they should really be paired in one window because you really can never view one in my opinion without the other so your first step is to change the coloring so you can better visualize the the imbalance between the buyers and the sellers these are buyers on the left these are sellers on the right so when we have a lot of Sellers and we're super heavy on the sell side that's something I take note of if I see very large sell orders here on the order size that's something I take note of and I'm always looking for hidden sellers so sometimes just as like for fun I'll try staring just at the bid and not looking at this like at all and it's impossible I cannot do it I I almost like lose my frame of reference I'm so trained just to look at the offer here so we're at 77 79 now I glance here and see 78 okay so what does that tell me we've got like a two-point spread one point spread I check it to see how tight the spreads are I'll check it to see oh it's stacked up or it's thinned out I glance at it but this to me is almost like the windshield looking out the front of a car while I'm driving and this to be honest is my rear viiew mirror because it's telling me what's just happened and this you know I just GL GL at out the side of the window just to see like I'm just glancing but this is really what I'm looking at now in part this is because I'm a long biased Trader and I'm focusing on the price moving higher if I was a short biased Trader maybe I could see focusing here and and glancing here but but I'm not a short bias Trader I'm a long bias Trader so I focus on the offer I check the spread I check to see if there's big orders and if I don't see you know anything concerning that I'm interested in taking the trade but it's also really important to remember that this level two is going to be moving around like this well it's 11:15 so it's going to be moving around like this for the next 5 hours doesn't matter what the chart looks like it's going to be moving around but when we actually pull up the chart we'll see that oh well this isn't really anything all that interesting you know this is the S&P 500 after all this is a it it's just such a big index it its price action becomes often very choppy it's it just Trends with the overall Market it's very hard in other words to day trade it whereas if we pulled up an individual stock I this one's not really doing too much what about this one nvf let's look at this individual stock that's moving higher so NV U nif sorry we're looking at the chart here okay so we see the price is moving higher we look at the F minute chart we got 1 2 3 four nearly five green candles in a row I would wager that this is starting to get a little extended up here so I may now be starting to think is this getting topheavy and will it roll over where is it going to run into resistance well one of the things that we know about stocks based on our understanding of technical analysis and Candlestick chart patterns is that we typically find resistance around half dollars and whole dollars so as this stock approaches $3 it would be very common for there to be a lot of sell orders stacked against that level just psychologically people will buy a stock like this at $150 $2 the like oh I'll just put my order at $3 to sell hey if it goes to three I'll take profit and so you have a a whole bunch of sell orders right at that level so now as we approach it we watch the level two see how a sell order just came in there and it it sort of knocked it back down sale order there at 93 that sorder got bought up goes to 94 goes to 95 and then another burst of selling so what we're seeing up here the level two is showing us that we're kind of churning a little bit we buy and then we sell we buy and then we sell and this type of churning behavior is common when the price is approaching an area of resistance it's a little bit of a battle right now I don't really like to be trading when there's a battle I'd i' rather be trading when it's very clear who's in control the Bulls right now because I'm a long biased Trader a short biased trade would feel the opposite so right there the Bears took control we saw that big burst of red on the level two right we dropped down 10 cents but it was predictable that that was about to happen predictable because we were near the whole dollar of three predictable because of the way that level two was churning right at that critical resistance level and and you could see how what I was seeing there was enough easily for me to say I'm not going to take that position so I would ask you would you have considered buying there would you have gotten in at 295 maybe for the break of three if you had you'd be down 25 20 cents here 25 on the bid when it dropped to 70 and I think this is a moment that exemplifies the value of having a mentor who's got a lot of experience because when I'm streaming for our Warrior Pro members you guys are able to listen over my shoulder hear my commentary and and I speak out loud the things I'm seeing so I'll say I'm seeing this churning I feel like this is heavy and it gives you the chance to kind of piggyback off of all of my experience it doesn't mean I'm right 100% of the time I make you know I have losing trades just like anyone else this is um $12.6 million of profit here and for what it's worth I'm wrong 31% of the time that's my accuracy 68% profitable 30 1 32% wrong okay so I'm not right 100% of the time but obviously I'm right more often than I'm wrong and it's a combination of I I would say a tremendous amount of experience which has created what I would call educated intuition educated intuition is that moment you that I just had there where I was able to say I feel like this isn't going to work that feeling it's a gut feeling but it's not just you know a gut feeling that doesn't have anything supporting it you know if if I was I don't know um I'm just thinking like if if you were in a combat situation I would want to trust the gut feeling of someone who's been in combat for 20 15 years or something who's got a lot of experience I don't know that's a long time to be in combat but you you get the idea I would trust their intuition a whole heck of a lot more than I would trust mine but in the market you want to be able have someone that has a lot of experience because this is all moving so quickly it's difficult as a beginner to process everything that's happening and to be able to make the right decisions in real time those who are able to do it however will be those who find the most success so it's certainly something to to strive for so okay so now we look at this chart and we see all right well we've got one two three four green candles in a row moving up the one minute chart you know moved up pulled back moved up dropped back down and at this point I would say we need to wait for a brand new pattern a 5- minute pattern now this gave you a five minute pattern right here it had a move up five minute pattern and then it gave that next leg higher so we would want to see the same thing happen here so for the next 15 20 minutes the level two I'm not even looking at it anymore the level two I'm only pulling up when I'm about to take a trade that's also important there are some people that get sucked into reading level two all day long but it's really only valid and worth looking at in the moments when the chart is supporting an entry trying to trade like you could like I said S&P 500 you could pull up the S&P 500 you could look at the the level two all day long and you could get faked out into thinking oh I should get in here I should get out there oh it's going to break this level it's going to break that level but if the chart pattern isn't showing anything that kind of helps you establish a low-risk entry buying just based on the level two is not going to work however if you see a pattern that you like the level two can help you rule out whether or not it's actually worth trading so for me I would not trade without using level two because it does give me an edge I'm able to see for instance let's say when this came up to uh $3 let's just say for for instance let's just say there was a 500,000 share buyer that showed up at on the level two at 291 I would look at that and I'd think whoa there's a huge buyer on this such a big buyer that they're creating bid support they're creating support by being such a large order now in that case I might feel differently about the potential break over three or as as it came up to three if I saw that 500,000 share seller at three I would say well geez clearly we've got a huge seller there and now that I know that seller is there the 5 minute pattern probably not will not work out as well because when it comes back up that seller is still going to be there right so the level two will give you an edge once you learn how to read it correctly the biggest thing for me number one was changing the color learning to uh have the tape be right next to the level two and learning where to look so obviously you're not supposed to look at the very bottom down here here that's useless you don't need to look at the middle so much it takes a while but I train my eye to look right here glancing at the tape and my peripheral vision and glancing at the bid to check the spread and to check to see if there's any big buyers but the big buyers are somewhat noticeable because when they pop up you'll see usually the the numbers are bigger because the size is larger so it's easier to see so now you know the three steps that I took that made reading level two easier if you want a deep dive into how to read the tape and re level to I'll put that episode right here and as always if you found this interesting I hope you hit that thumbs up and I hope you subscribe to the channel for more episodes on trading strategy technical analysis and becoming a better Trader that's what this channel is all about I'll see you for the next episode real soon and I want to remind you as always that trading is risky my results aren't typical so manage your risk and take it slow