Level 1 & Level 2 (aka market data) are some key terms that all traders should understand. If you haven’t covered “Bid and Ask”, you might want to refresh on that, since Level 1 and 2 includes the bid and ask. Below is an image that covers the basics of the Bid & Ask.
Level 1 is a very simple representation of what the buyers and sellers currently have listed as their best prices. Typically this data is free, or delayed at most brokers or online.
Level 2 is level 1, but with market depth added in. This means you are seeing the order book, not just the best prices available on the bid and ask. Instead level 2 shows you the stacks of orders at different levels by size and exchange. Level 2 is particularly useful for momentum day trading, as it can help indicate large buyers and sellers in the “tape”.
Time & Sales Breakdown
As a trader, it’s really important to understand the Time & Sales window. Here’s a helpful image that illustrates what the information in the Time & Sales window means.
Many trading platforms have the option to customize the T&S window(s) so there will be various styles depending on trading style and preferences.
A quick way to get started getting used to the T&S window is by watching direction, volume and price and how it moves in a short period of time. Then looking for indications such as volume spikes or significant amounts of trades being executed. Then try using T&S on stocks with high volume. It will likely lead to better trading as the direction of the stock is heading may be more evident to the informed trader.
These are tips on how to read the level 1 and 2 window like a true professional. The more you learn, the more you earn! If you have any questions or comments about the reading Level 2, feel free to use the contact form below to get in touch with us.