Think or Swim Tutorial - The “Level II” screen and the Trade Grid

This tutorial helps you understanding the meaning of the Level II Quote screen. By the end of this article you will be able to determine the true picture of strength and weakness in a stock using the Trade Grid in the Think or Swim Trading Platform. If you find this tutorial interesting read also ThinkorSwim Tutorial - Trade Grid and Market Liquidity.

How to place the most rewarding options strategies from scratch? Visit my website at www.FromZeroToOptions.com to get tutorials, instructions, articles and much more stocks and options related.

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The Think or Swim trading platform is among the few brokerage firms that offer to their clients, and for completely free, an easy access to a deeper level of information. The amazing tool, that allows a trader to determine the true picture of strength or weakness in the stock, is called “The Level II Quote screen or display ”.

The Level II Quote screen shows you not only the Insight Quote (please take a look at the Trade Grid article), but also the other bid/ask prices that are usually underneath. It displays the prices and the number of shares that all participating market makers and ECNs are willing to ask or bid. You can find the information provided by the Level II screen in Think or Swim in the Trade Grid . You will notice that the Trade Grid is displayed as a colour-coded box in which prices are differentiated by colours. This is because each colour represent a different price level.

By watching carefully the Trade Grid you can track all the movements on the bid/ask sides of the underlying stock of either market makers, specialists and the public.

The general public in the Level II screen is usually represented by the symbol ISLD. For the Master Trader is essential looking at the ISLD because it is one of the guide through which he can get the fear and the greed of the public.

On a Level II screen you should be able to determine the true picture of strength or weakness in the stock by watching the following information:

• buyers who outnumber sellers;
• sellers who outnumber buyers;
• equilibrium between buyers and sellers.

Free Tutorials - Stocks, Options and ThinkorSwim. Click Here.

Rise in the Stock price: buyers outnumber sellers

When on a Level II Display you are watching an increase in the number of market makers willing to buy (bidding side) at progressively higher prices and a decrease in the number of market makers willing to sell (asking or offering side) you will have an upward momentum with a steady rise in price. In other words, the price level will grow deeper on the bid size and thinner on the ask side meaning greater buying demand than selling supply. Therefore, market makers and traders will be competing on the Level II screen by jumping in front of each other to gain the best position to buy. As a result of this competition, prices will move higher and higher.

Decline in the Stock price: sellers outnumber buyers

When on a Level II Display you are watching an increase in the number of market makers willing to sell (asking or offering side) at progressively lower prices and a decrease in the number of market makers willing to buy (bidding side) you will have a downward momentum with a steady decline in price. In other words, the price level will grow deeper on the ask side and thinner on the bid side indicating greater selling supply than buying demand. Therefore, market makers and traders will be willing to step in front of each other to exit the stock on the ask/offer side. During a downward momentum, the majority of trades will be occurring at the bid price in red.

Saturation Point: equilibrium between buyers and sellers

A Saturation Point is when the number of buyers and sellers on the bid and ask sides has started to equalize and the colour bands separating each price level start to be matched.

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Do not forget to visit my website at www.FromZeroToOptions.com to get tutorials, instructions, articles and mach more stocks and options related.

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The kind of stocks you should trade in looking at a Level II Quote are the ones having a wide market maker participation at each price level and a big participation of the public. In fact, it is the public’s lack of knowledge that offers you the greatest chance to profit.

As a rule of thumb, the number of market makers queuing on either side (bid or ask) gives you a general indication of the strength or weakness in a stock.

If there are much more market makers on the bidding side than on the asking side, it should normally mean that there are more people willing to buy the stock than to sell it. Obviously, this picture shows a strong market environment.

On the other hand, if there are much more market makers willing to sell (asking side) than willing to buy (Bidding side), it should normally mean that there are low prices on the market. Instead, this picture shows a weak market environment.

Knowing how many actors are playing in a stock is, in any case, as important as knowing the quality of the actors involved. The master trader must understand in which direction market makers are trading and never try to go against them. This is why market makers have access to huge capitals and, consequently, potentially unlimited order flow. Going against them will help you to easily and fast fritter away your hard-earned cash.

Through the Level II screen and the Trade Grid in Think or Swim you can understand in which side of the market the biggest players are trading in and choose to trade in the same direction.

Free Tutorials - Stocks, Options and ThinkorSwim. Click Here.

In the next GroWithYou Trading Tutorial:

• The Stock Quotes - Bid and Ask prices
• The Insight Quote
• The Order SIze
• The Trade Grid

Keep learning about Exercising Stock Options by going to: ThinkorSwim Tutorial - Trade Grid and Market Liquidity.

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