[Music] in today's episode we're going to do a deep dive into how I use level two to time my entries and my exits while day trading there is no question that being an expert at reading level two has made me a more profitable Trader the only questions how can I share with you and teach you to read the subtle signals that are telling me when to buy and when to sell when I see it on the tape that's the goal for this class now I'm going to walk you through how I read level two how I use it in my own trading to predict when a stock is going to go up or when a stock is going to go down and I want you to start to implement the things you're learning in this class in your own trading I can tell you that there's a learning curve to being able to really read the tape because it's like learning to read a brand new language this is the language of the financial markets but those who Master the this language are the ones who become profitable as long as in addition to the skill of reading the tape and identifying chart patterns you also possess the elusive ability to maintain discipline so if you think you have what it takes let's go ahead and jump in my name is Ross Cameron I'm a full-time day trader and I'm probably best known for turning an account with less than $600 into more than $10 million of verified and audited trading profits while those results are not typical they do put me in the unique position to share with you what is actually working in the market today and I can tell you that I wouldn't have made that money if it weren't for mastering the art of reading the tape reading level two so the way I think of level two is I think of it as the road ahead because what level two is showing is all of the open orders to buy or sell a stock so it's not telling us what's already happened it's telling us all the orders that are currently placed right now now and we use that information to try to make an educated guess of what's going to happen next now stock charts are historical price action a stock chart doesn't show level two it doesn't show what the bid or the offer was it doesn't show what the spreads were like it just shows the historical price action what's already happened but this is important because this gives us context so the way I think of it is sort of like driving a car the stock charts are what I see in my rearview mirrors I'm looking back to check the stock charts and I'm looking forward at the level two to try to predict what's coming next which means most of the time when I'm driving I'm looking through the window not in my mirrors I check the mirrors when I'm looking through the front window same with trading most of the time when I'm trading I'm staring at the level two and I'm glancing at the stock charts now I've dedicated a lot of time and other episodes to teaching you how to read Candlestick charts because that is an incredibly important skill to have but it is just one block in the foundation of becoming a successful Trader and mastering tape reading and understanding how to visualize the level two is a critical block that you have to learn and that's what we're going to jump into right now so we're going to start with the basics and then we're going to add detail as we go this is the level two on the left we have the bid and on the right we have the ask on the bid we have people that are bidding to buy the stock so let's say the stock is trading at $5 you will have someone bidding at $5 and then they will have the number of shares they want to buy which could be let's say 5,000 now below this current best bidder at five will be someone else who wants to buy the stock usually it'll be one penny lower at like $4.99 maybe they have another 5,000 shares and then there might be someone at $498 and maybe there isn't someone next until 494 and it's 2,000 shares and 1,000 shares these are all people that are bidding to buy the stock now they bid up to the lowest price seller now the lowest price seller in this case will say is someone selling shares at 502 and they're selling 10,000 shares and then let's say the next order is at 504 for let's say 7,000 shares and then 58 for another 3,000 shares and then we could say 512 for another 5,000 shares so at any time when we look at a stock these orders are moving these are individual people who are placing orders so at any time this person could cancel their order they could say oh I'm going to cancel that order I'm going to take it away and that order is gone and another Trader could come in and say oh I actually I want to sell this stock at 503 I'm going to sell 2,000 shares so orders are constantly moving in and moving out on the level two what I am looking at is a couple things I'm looking at the spread between the best buyer and the lowest price seller in this case we have a 2cent spread $5 by 502 now any stock priced above $1 will trade with a minimum of a 1 cent spread so 501 by 502 is the tightest the spread can be stocks are not quoted in fractions of a penny once they trade over a dollar that's not true with stocks below a dollar stocks below dollar will actually trade down to the one/ 100th of a penny but I don't usually trade penny stocks so we're going to focus this class on stocks that are over a dollar so they're trading with a minimum spread of one penny Okay so with a minimum spread of one penny uh that's the minimum but there's no maximum you could have a spread you could have a stock that's trading $5 by $6 a share with a $1 spread that's not very common a two spread like this is much more common okay so the first thing I look at is the spread the reason I look at the spread is because this helps me understand the risk I would be taking if I take this trade if I bought this stock right now there's two ways I could buy I could buy by posting an order on the bid to buy it at $5 but my order is just going to sit there like this other person and in fact because that person put their order there first uh my order won't get filled until theirs gets filled so I'll be last in line if I place my order right now now I could cut the spread by putting an order at 501 to buy 2,000 shares right so now this moves the stock to a 1-cent spread we'd have a tighter spread if I did that um and that's that's fine sometimes I'll do that but if I really want to buy the stock and I want to get in right away then the thing to do for me is to buy directly from this person who's selling shares at 502 yes I'm going to pay 2 cents more I'm going to pay the spread amount more to get in immediately but if I see a stock and I like the chart pattern then I'm going to just buy right here from the lowest price seller as long as the spread's not too big now if we were in a situation where we had a 50 cent. 75 cent or a dollar a share spread that's going to be tough for me to take a trade on I would say the maximum spread I'd prefer to trade would probably be 15 to 20 cents on a stock under $10 a share but sometimes they'll be spreads bigger than that that and occasionally I will take those trads okay so if I want to get in right now that means I buy 25 let's say for example 2500 shares I buy from this seller so if I did that that order immediately is going to go to 7,500 shares I'm going to have five 2500 shares at a 502 average but let's just say for instance that I actually wanted to buy 15,000 shares if I want to buy 15,000 shares and I placed an order to buy and it's a market order I would fill the full 10,000 at 502 another 2,000 at 503 and another 3,000 at 508 which means I would have 15,000 shares with an average cost of you know probably approximately you know 53 and and and this in this case may end up being a fraction of a penny that I get my average because I bought at different prices the other way to do it would be to say well I'm going to place a limit order to buy and so my limit order is going to be at the price of let's say 503 so if I did that I would buy 15,000 shares at 503 and I would get the full 12,000 filled here and then I would be on the bid at 503 with the remaining 3,000 shares and on the offer here would be well the current 508 offer because these guys have been bought up so now this the stock would move up a little bit and my order would be sitting on the bid which means I won't get filled unless someone comes and sells me shares at this price now that could happen but I would have to be patient my philosophy with trading is that when a stock is moving up I want to get in I want to participate in the move up and I'm not going to have time to wait and sit on the bid in hopes that someone will sell me shares because if a stock is moving quickly people aren't there's much more buying so what I'm going to do is I'm going to buy from a seller on the offer I'm going to buy from a seller on the ask and as the stock moves up when it comes time for me to take profit you know what I'm going to do so let's say the stock moves up and and let's just say for the sake of argument um that I'm that I'm already in this stock so we'll do 508 510 512 515 let's just say I'm already in the stock at 49 three so what I could do is I could say all right the stock is moving up it's got a lot of strength I'm going to put my order to sell on the ask here I'm going to sell my 15,000 shares at 507 and I don't mind being patient and waiting for someone to buy my shares when the market is strong when the market is strong and we have an imbalance to the buy side I'm happy to wait to let someone buy my shares right there's no problem with that it's when a stock is squeezing up and you want to get in sitting and waiting to get in on the bid you'll never get filled you'll miss your opportunity all right so when you want to get in in my opinion I'm going to buy on the ask but when I'm getting out if the stock is strong and I'm maybe just selling half my position or I'm taking some profit I'm going to try to sell on the ask to get the best price okay so in real time the level two is constantly fluctuating orders are coming in orders are getting cancelled and we ultimately see this very dynamic movement of where people are bidding and where people are are asking or offering uh shares to sell now one of the things that this um Works in conjunction with is the time and sales so the time and sales is a window right next to level two on most trading platforms that's going to show you every individual order that goes through the tape that goes through the market and this is called a tape because it it it sort of looks on a small piece of paper it's about the size of Scotch tape when it used to come out from a ticker tape machine in like the late 1800s early 1900s it would print on this little paper stream this little roll of paper and it would be printing the quotes so today we have this same kind of visual tape except of course it's digital on our computer screen so what this is helping is this is showing every single order that goes through but it's not in blue these orders are going to go through and what would happen if we saw 503 503 5507 and then we see 503 and then we see you know 507 Etc so the reason these are colored is green orders are orders that are occurring at the ask price so of course the price is always moving up and down but when we look back on the tape when we see orders that are in green it means at that moment they were occurring at the ask price orders in red are occurring at the bid price when I say I want to see green on the tape what I want to see is a ton of orders here that're buy byy buy byy byy byy byy orders when you see all this green on the tape that communicates Markus sentiment that tells you lots of people are buying this stock right now people like it all right now if you see a huge burst of red tons and tons and tons of red that's going to communicate that people are selling the and they don't like it when it's mixed you're seeing red and and and green sort of interchanged that's usually when we're in a market that's a little bit more indifferent uh if you see white or black those are orders that are going through in between the spread which can happen when an order gets matched when there's a buyer and seller that are at the same time that are in between the the bid and the offer so orders between the spread are also sort of indifferent they're not a strong sentiment to the buy side or to the sell side but the lack of strong sentiment can be indicative of a possible reversal so if we were trading a stock and let's just say for instance um we look at we'll do these candles here we have the stock that's been making a nice move up we've been seeing these big green candlesticks and so at that time on the level two and on the tape we were just seeing tons of green orders you know an occasional sell order but tons of green orders and then we kind of come up here to the top and we have a dogee candle this is a candle of indecision during this period of time right during this let's say this is a one minute chart during this one minute these 60 seconds we would see a mix of orders going through the tape that are red and green and that are black that are in between the spread and that would communicate on the level two a degree of indecision so what's interesting here is that people who are really good at reading the tape can actually create a stock chart in their mind based on the prices they've just seen so let me describe how I do that this is something I'll do a lot when a company does an initial public offering when we first get an IPO the stock is trading so quickly that sometimes the charts are lagging and struggling to keep up this is sort of always been the case so if a company IPOs is at $55 a share and the first order that I see go through is at 55 what typically happens is we'll have that first print so I'll just draw this um here just to begin with usually what will happen is you'll have the first print at uh $55 and usually it's a there's some selling and then you might see you know 50 uh 5490 54 sorry 5450 it starts to drop down and then maybe all the way down to um 5400 and then it goes 53 50 right and then all of a sudden you see green of 5355 the second I see that green this is when I'm buying I let it sell and then once I see the green I'm buying and I remember the high was 55 so I'm in now I'm going to buy this now so I would say buy at you know 53 60 approximately and then my Max loss on this trade is the low that I had seen on the tape 5350 and now I want to see it rip back up and usually this will happen really fast all of a sudden we see 5425 and then we see 55 and 56 and 57 and 58 and boom I'm taking profit now what that would look like on a chart is initial candle going red pulling back and then maybe a bottom and then this whip back up it's kind of like a red to Green move it's just this incredible surge back up and the only things I really need to keep track of is what was the high what was the low right right down here and if I can remember those two prices then essentially I can visualize a chart I know it hit a high we pulled down to this level and now I'm looking for that red to Green move where we go from the low and whip back up so in the older days before you had stock charts you would have the tick or tape machine producing the quotes and so people would actually manually on some graph paper plot out the highs and the lows and they would do this for all the stocks that they were watching for active Traders and investors now today of course we have stock charts so we don't have to do that but I think it as a good exercise worth trying to see whether or not you could visualize a chart just based on the level two I'll do this all the time with halt resumptions I'll do it when a stock has got breaking news I'm staring at the level two and when I'm staring at the level two there's always a question of what exactly are you looking at so we've got the bid we've got the ask right here so in the case well it doesn't really matter so let's just do a new example so we'll put a stock at $7 and then we'll do 715 and then here is is going to be the time and sales time and sales so this is where we're going to see every individual order that goes through so what I'm doing is I've got my two eyeballs and they are both looking right here so they're looking right here at the ask price I glance at the time in sales and in my peripheral vision I see the green because they're right next to each other and when I see that green I know other people are buying so at that moment moment if I like this stock because you know let's just say it had a nice uh pattern one of the chart patterns that we talk about I know it's very close to an Apex point and I'm perhaps thinking well if I get in here at 7:15 my stop is seven psychological support at the whole dollar then I'm going to press the buy button I don't use Market orders I use limit orders but the type of limit order I use I use a 10cent offset so that's supposed to be what whatever 10 cents 10cent off offet so the 10cent offset means I'll place my order at actually 725 so 725 so if I want to buy 10,000 shares that means I'm willing if there's only 3,000 shares for sale here at 715 I'll buy those and then I'll buy the ones at 717 and I'll buy the ones at 7 you know 19 and 724 but if I can't fill my full order up to 725 I'm not going to allow it to fill any higher than that let's just say you know there was only between $7 and and $8 there was only 5,000 shares of sell orders that's not likely but let's just say for instance there was a stock that that was the case if you press the 10,000 or 20,000 share order all of a sudden you're just feeling Higher and Higher and Higher and Higher and Higher and then you're going to realize whoa I'm in 10,000 shares but I'm in at $7.75 or something like that that's way too high with my stop at $7 now I'm risking 7,000 bucks so that's not going to work so I allow slippage slippage is is the difference between the price you want to get in at and what you actually fill at but within reason so 10cent offset to buy and 10cent offset to sell when I sell on the bid but most of the time I try to sell on the offer so in this case I'm going to buy at 715 I want to see the stock go up to 725 735 745 and then I'm going to be looking at the price action as it comes up to the next area of resistance now we know that on most uh stocks we'll have psychological resistance up around 750 so psychological resistance can be visualized in the form of let's say a 20,000 share sell order right at that psychological level and then uh so let's say this starts to squeeze up to 7 um 45 oops 745 745 on the bid 750 on the offer now if we have a big stream of buyers this will go from 20 and it'll go 18 17 16 15 this buyer is getting bought up when I see this happen usually once it breaks like 10,000 shares and it's down to 987 I will add right here because this seller is being bought up and once we break this psychological area as long as the bid moves up to 750 and it will as almost definitely when the stock goes up when it breaks that 750 level it's going to go up to like 765 or something like that as long as the bid stays at 750 now this is my new stop now that's even better when the buyer at 750 is like 10,000 shares when you see a big buyer there at 750 then it's like okay now I know I could buy 10,000 shares at 765 and if I need to turn around sell it at 750 I can now it is important to note that there's something called order spoofing that some people will use now you're not allowed to do it it's illegal and if your broker catches you doing it they will ban your account close your account and ban it but there are some people that will do it unfortunately and what that means is a spoof is when you place an order right here but it's a Well it's not a fake order it's a real order but you're you're planning to cancel it before your order gets filled and so what you're trying to do is you're trying to convince people that there's support here but you're going to just pull pull that order away as soon as someone tries to sell into it so that does happen but because it's illegal it doesn't happen a lot so for the most part when I see orders on the level two I take them at face value that they're real orders uh however if I see a stock does have someone spoofing orders then I usually won't trade that stock for the rest of the day because I'll realize okay I can't trust the level two on this one because there's someone doing something sketchy all right so when I see this big Buy on the bid the only time I look at the bid really is to check two things the spread which in this case is 15 and how many shares are sitting at the bid price now sometimes you look at the bid and you'll see it's 750 and then the next bid is 749 748 and you're like okay it's this is a very there's a lot of bid support other times you'll look at the bid and you'll see it's 750 then it's 714 and that's it's like 689 and you're like okay if this 750 breaks it's going back to 714 and 714 breaks it's going back to 689 so this is a stock that I'd be a little bit more careful on but what I might see is something similar on the other side 760 795 8 uh sorry 835 right and then let's say 872 or something like that and you're like wow okay if this stock breaks this 750 level we're not seeing a lot of resistance on it all the way up to n bucks so what's kind of interesting is that your what you see on level two could be taken sort of out of context of what's happening on the stock chart because you might look at the stock chart and you see well wait a second we have the 200 EMA exponential moving average at exactly you know 735 so or or maybe let's say it's at 750 it's at 750 now sometimes at 850 sometimes at 850 right at that 200 EMA you'll see another big seller and you're like okay someone recognizes that so so sometimes the level two will very directly correspond to areas of support or resistance on the chart but there are other times where for whatever reason it does not and so you cannot use level two in complete isol to using a stock chart it's not a replacement for a stock chart they're supposed to be used in conjunction and they compl each other ultimately you want to avoid analysis paralysis but at the same time the the information you get from the charts is historical context and you get the visual of the current chart pattern which it can be a Buy Signal so if you have a strong Buy Signal forming on a current chart pattern and and then you pull up the level two and you see all right on the level two we've got some good bid support we don't have any big big sellers now it's like you've checked sort of your multiple um levels of information and they both check out and then we would say we have confirmation from multiple sources we have confirmation from the stock chart we have confirmation from the level two there are times where I'll see a stock chart that looks awesome but the level two is garbage let me pull up my um here and I'll show you uh level two in uh sort of in in this visual form okay so this is the level two right here of this stock it's down 4.9% and you have the bid on the left and the ask on the right in this case we've got a uh spread of 12 cents 460 by 472 and you can see at 460 that we have a buyer of 3,500 shares 35 it's always an an increment you add two zer so 1 is 100 10 is a th000 100 is 10,000 so on this stock right now if you happen to like the chart which well I don't because this chart's boring but if you did like the chart then you would look at the level two and probably see ah it's got a 12 cent spread not a lot of volume probably can't trade it go just hit our scanners here now this looks very different we have a very tight spread 67 by 68 and what's probably worth noting on this is wait a second why what's what's up with the colors so I'm going to just freeze this screen for one second so right in this area here the reason we have like seven rows of green is because 65 765 is the first tier of price it's the best buyer and the reason we only have four at 66 is because there's well there's only four at the best price on the sell side so the first or the first level of the market the first depth of the market is the first level and it's green so the best buyer and the best seller the the highest price buyer and the lowest price seller now the second is red and the third is yellow and then so on and so forth so I find this to be extremely helpful in my trading because I'm able to clearly visualize there are more buyers than sellers or there are more sellers than buyers in this moment there's more buyers right now and there's a 8,000 share buyer that just came up so as you see this here for a moment you're actually seeing that how fluid it is how it's actually moving and this little window here is our time and sales so there's some orders in green and some orders in red now we haven't pulled up the chart yet so we don't know again we were looking at this in absence of a stock chart but now we see a chart and we see a stock that well to be honest is fairly extended it's up 29% it's been moving higher now the float on this is nearly 100 million shares for those that have watched my class on the best stocks to trade you know that this is not the type of stock I would typically be day trading uh slightly higher float these are more likely to be a grinder move a little bit more slowly now certainly it's been steady you know slow and steady but it's been moving a bit more slowly and it has a very um large stack of buyers and sellers at almost any given time this degree of buyers and sellers is most likely um created by algorithmic trading high frequency trading algorithms subscribe to Market data they're subscribing in the market data and in real time as they see orders coming in they are moving their own orders so if they see a big buy order come in they can actually try to cut in front of that buy order to get in first now this is a practice that is very common in the high frequency trading world it's not something retail Traders like you and I can do and so generally when I see a stock that I think has a higher level of algorithmic trading I will avoid it because I'll know that there's market makers cutting in front of my orders to make money off of me and that kind of means the pie of profit is being split in more ways and that means less profit for me and the market maker is always going to win because they're use these sophisticated algorithms so trying to trade against them is like playing chess against a computer it's very difficult and so generally speaking I know that most stocks that have higher floats will have higher degrees of algorithmic trading because these are stocks that are less volatile and less volatile means they're safer for a computer system to be trading so if we looked at stock like Bank of America it's it's very much the same Ford Motor Company very much the same but if then if we looked at a stock like Holo this one very different right look at how different those are or you look at BMR this one well maybe this one's a little in between it's it's a little heavier on the bid side lighter on the ask side maybe that's indicating that there's more buyers on this and fewer sellers WG again a little bit of a thinner one but you look at Holo and you've got 12 cents spread and you can see how quickly this stock can and and could potentially move up it's obviously very volatile so and if you looked at the chart you that would just reaffirm uh what you're thinking there this is a stock that has a history of making huge moves okay so now let's talk about some of the things that I look for that really help give me an indicator that I should be buying or selling okay so I see this stock um hit my scans let's just say so it hits my stock scanners like s so it's hitting the scans okay so my first order of business is I see the stock I look at the volume I look at the float how much is it up today now this one isn't really standing out in any meaningful way we could look at Fel I don't know if this one will stand out in any meaningful way either it initially doesn't just looking at the scans so we'll switch back to go just for instance because this one was at least moving quite a bit okay so go um it's got higher float but we'll pull up the level two so I pull up the chart I pull up the level two and then at this point I'm looking at the bid I'm looking at the ask I'm checking the spread how big is the spread and and immediately in this case I would say it's too thickly traded this isn't probably even going to move 5 cents a share it's just it's in too thick of a range it's it's probably not going to work well so I this one I would probably say no but if hoo popped up on my on my um scans and it's squeezing up I would look at this and think okay if we get through the 30s we could get up to 1080 so then I would look at the chart and say is that a realistic probability and if it is then I'm going to look for green on the tape so as soon as I see that green on the tape that's going to tell me that other people like this stock too and they're buying it so that tells me I'm not alone in my theory that this is a stock worth worth looking at so I press the buy button and let's say I get in at you know 765 from the moment I get in I pretty much want to see the stock go up if I'm right on my entry I'm getting in at 765 my stop is at 750 which is the half dollar that means in this case I'm risking 15 cents a share profit Target is 30 cents for a 2:1 ratio so targets 95 and that makes sense coming up to the half dollar whole dollar of eight which could be psychological resistance so as we see green on the tape we'll see the price start to move up so it goes 765 and then it's going to be 785 and then that gets bought up and then it becomes 88 then that gets bought up and it becomes 98 for instance now if there's a 50,000 share seller here I'm going to realize okay someone is selling a lot of shares here at 8 I'm not going to wait to hope that breaks I'm going to go ahead and take some profit and unfortunately because there's a really big sell order here although I could put an order underneath that and cut the spread I could put the order at 797 people are still going to see that there's a huge sell order here at 98 for 50,000 shares so I might as well in this case not even try to sell on the offer I'll look at the bid and I'll say well let's see what the bid's at and if the bid is at like 88 I'll probably just sell on the bid yes I'm going to get 10 cents less but my theory is that because we have this really big seller up here at 98 98 798 I don't know why I'm writing backwards 798 that other people are going to see that they're going to get scared off and they're going to start selling and so what we're probably going to start seeing is some red on the tape some Red's going to start taking over on the tape and then as that happens more people are going to sell and it's going to go the sell is going to take out 788 and it's going to go to 778 and then that's going to get sold into and it's going to go to 765 and then back to 740 you know who knows maybe it'll hold at 750 maybe down at 750 we'll see a 20,000 share buyer and if that's the case then I might say there's some psychological support down here so in that scenario I might go ahead and try to buy at 755 as a dip trade with a stop at 750 now it's a 5cent stop and if this bounces even just back up to 775 hey that's great that's a 20 cent that's 20 profit that's a 4 to1 risk reward ratio so I would take that dip trade as it comes back up so when I'm doing dip trades like that a lot of times they are based on what I'm seeing on the level two now for me dip trades will also be no doubt based on the price action I'm seeing on the chart so sprc is one I traded uh earlier this morning this had this kind of squeeze here um and when it first started to pop up I'll actually show you on the 10-second chart um I like the 10-second chart because it can be helpful for visualizing what happened uh in a very small window of time okay so the stock pops up right here to a high of um 475 it dips down and then it pops up to a high of 512 it dips down right here to 463 and then I saw some green on the tape and I said you know what I'm going to punch it I bought 2,000 shares stop is it the low of this candle so why did I punch it well I saw on the tape in this case the price was around um five four it was around 485 I think and the previous low had been 4 463 but the bid had already started to come up to about 475 so I was like I could get in right here with a 20 cent stop at about 465 all right so now I'm risking 20 cents profit Target 40 cents and what ended up happening on this trade is it breaks 485 it goes to $499 and then immediately goes up to 510 so now I'm immediately up 25 cents a share and then it goes to 530 540 550 and all of a sudden look at this right here we hit a high 527 and then it squeezes right here up to 580 and hit a high of 620 so this ended up being a really nice move and although I didn't make a ton on it because the volume was kind of light and it was early in the day it was a nice start so this wouldn't have happened this trade if I hadn't looked at the level two and seeing okay I can get in this with like basically a 15 20 cent stop the spreads are relatively tight we sold off and now we're seeing green on the tape so this is kind of where the rubber meets the road in the sense that level two is going to you know you're going to look at my trade sometimes you're going to look at a chart and be like oh man I don't see where you got in there and one of the problems is that the chart doesn't show you what the spreads were you know the chart doesn't show you what the level two looked like the chart is just showing the prices that actually went through it doesn't show you that there was a 50,000 share order you know here or there so when you're looking just at the chart yes you can look back and you can see oh I got in there you know I got in right down here and I sold a little here and then maybe I added back here and sold a little here and added back here and sold a little here and sold a little here you know you'd see the buy sell Buy sell by sell but you but without seeing level two it it could be hard to understand exactly why I press the buy and sell button so what I can tell you is that the actual pressing of the buy and sell button is based on what I see on the tape so when I get in a trade the first thing I want to see if I've got if I've made the decision to press the buy button which would have been based on an analysis of the spread how thin or thick the the level two is with other buyers if it's very crowded I'm probably not going to trade it if it's too thin and we have like a 75 cent spread I also probably won't trade it so the sweet spot is that it looks like it has a potential to move 3540 cents a share you know that would be nice I'm not going to trade something that can only go up 5 cents a share that's not enough it's not enough profit to justify the risk so I want to see that it could make a big a bit of a move so if I've done my due diligence there and I've said okay I'm going to execute the trade I'm in from that point what I want to see is green on the tape because the green on the tape confirms that I was right I had the right idea and other buyers see it too and they like it and the price should be moving up you could see green on the tape but the price is not moving up that would happen if there's a really big seller on the level to so I want to see the price moving up I want to see green on the tape and I want to see it approach its next level of resistance which most frequently will be at the next half dollar or the next whole dollar so from 750 to 8 from 850 to 9 you know 9 9 to 950 Etc that's right so as it's moving up every 50 cents I expect to see a little bit of resistance now sometimes when stocks get really strong they start going full dollars a share and only hitting resistance at the dollar Mark which is impressive when that happens but I expect a little resistance at half dollars and and that's okay that doesn't bother me okay so that's what I want to see if right after getting into a trade I see a huge sell order for a million shares pop up I'm just going to get out I'm not even going to try to sell on the ask I'm just going to sell in the bid and get out if momentum just sort of you know goes away I don't see any green on the tape there's some red or some white then I'm going to think I better get out cuz I I timed it wrong I expected to see volume and we're not seeing it I've expected to see the stock go higher and it's not and those are kind of my two indicators or third if I see a burst of selling if as soon as I get in I see a burst is selling then I'm like whoa someone else is selling I better just get out so if I see those three things those are my indicators to bail and I see those on the tape I'm not going to really see those on the chart by the time they're reflected in a chart in a Candlestick that has a tall upper candle wick or is a dogee it's already happened so I need to be able to see it happening in real time and that's what I'm going to visualize on the actual level two I'm going to see that on the time and sales on the time in sales and the level two I'm going to see it in both places now as I mentioned before for my trading I'm using limit orders as my order type um and I'm using offsets 10 cents above the ask 5 10 cents below the bid depending on the price of the stock if you make the offset too big you can get orders rejected if you're trading penny stocks 5 cents on a you know 50 Cent stock is 10% so that's could be too big of an order Offset you could get the order rejected by your broker but for most stocks 5 to 10 cents works well for me it allows a little bit of slippage uh for entries and exits but not too much Market orders don't work pre-market so I won't use them and in terms of stop orders one of the problems is that stop orders go into what's called level three Market data we don't get that access as retail Traders but the big dogs do so they see where all of your stop orders are so if they see a bunch of people all have stop Wars at the same price they could bring the stock down to that price get you all stopped out and then it comes right back up they basically buy your shares so you have to be a little bit careful with stop orders you cannot use them at all pre-market but you can use them during regular trading hours if you'd like the fact is if you're the type of Trader who's using level two you're most likely trading quickly your average hold time is less than 5 minutes you're getting in you're getting out you're getting back in you're getting back out you're a very active Trader the reason that I trade like that is because for me I guess that's where I sort of found my Edge I felt like it's very hard to predict what stock is going to do six months from now it's hard to predict what it's going to do six weeks from now it's hard to predict what it's going to do a day from now but what's going to do 15 minutes from now that starts to become more manageable now there's a limit to how much you can make in 15 minutes you can't put a hundred million into a stock and then take it back out in 5 minutes or 10 minutes but you can move in and out with $10,000 $100,000 couple hundred thousand sometimes a million I certainly did that during GameStop uh and that was fine and so for me moving in and out quickly is easy with smaller positions and that's the area where I feel like I have an edge because I can predict based on what I see on the level two when I'm seeing on the chart what a stock is going to do ultimately the traders who are able to predict the future the best will be the ones who make the most money so this episode on reading level two is going to go very nicely with my other episodes on how to find the strongest stocks how to pick stocks and how to read uh chart patterns all right so make sure you keep studying keep learning and if you found this episode at all helpful I hope you hit the thumbs up and I hope you subscribe to the channel so you can stay tuned for my next upload which is coming real [Music] soon