Level 2 Quotes
Level 2 quotes are access to the Nasdaq order book via your day trading software graphic interface.
Level 2 quote access is extremely important when it comes day trading stocks. If you are trading using an app like Robinhood or your online brokers website, there is a strong chance you are not getting access to enough information. Level 2 can tell you a lot about which direction a stock can potentially move. Just like anything, the more information you have, the better off you are when making a decision. Level 2 quotes show important information such as bids, asks, spreads, and market marker players. Often times, its good to shoot for a mid price entry between the spread. Level 2 can tell you if bid and asks are stacked or if large size is trying to buy or sell blocks.
Bid: The price in which a market participant is willing to buy a stock. You will be looking to sell here. Stacked bids are when bids are lined up at the same price. If you see a large bid that can drive the stock up someone buying large blocks is clearly bullish.
Ask: The price at which a market participant is willing to sell a stock. You will be looking to buy here. Stacked asks are when asks are lined up at the same price. This can cause a stock to hold price because its tougher to wipe out these prices and drive the stock up or down. Large ask can drive a stock downward because someone is trying to exit with large size.
Spread: The price area in between the bid and ask prices. This is where you ideally would like to buy or sell by placing a limit order (mid price). Stocks with high liquidity will have tight spreads (ideal). Stocks with wide spreads make fills more costly and tougher. These are often the case with low float stocks that have low volume and it can cause wild swings.
The Ax: The dominant market maker that most effects the price action of a stock day to day. Identifying the Ax can be valuable as it can help to better understand a stocks movement. Unfortunately, manipulation can and does take place and is something to look out for. It happens more on the smaller cap low float stocks that can be manipulated easier with less volume. The AX will have the greatest influence over the price movement.