Day Trading Articles

Level II - Overview

Level II provides the data for pending orders in the market. It displays the size of the best bids and offers with their respective depths. Day traders use level II to gauge the direction of the market over the short-term. This article will discuss the working parts of the level II screen based on the tools provided from the tradestation brokerage firm. While level II windows will look differently depending on the broker, the functionality is virtually the same.

Level II Window Structure

The level II window structure is comprised of four key components: (1) security information, (2) bid/ask window, (3) depth chart, and (4) bid/ask orders.

What is Day Trading?

The act of buying and selling securities intra-day with the expectation of making fast profits within minutes to hours is known as day trading. Day traders come in all shapes and forms, using mechanical to systematic day trading systems, and can place anywhere from one to thousands of trades per day.

Types of Day Traders

Breakout Traders:

Many day traders will trade momentum and focus on day trading breakouts above swing highs and swing lows while others will look to trade reversal setups after gaps.

Reversal Traders:

Counter-trend traders will look for signs that a stock is topping or bottoming out before they place a trade in the opposite direction. For example, reversal traders use tools such as the TICK, TICKI, Put Call Ratio, volume, etc. to anticipate a change in trend.

Understanding Specific Time Zones during the Trading Day

Having a successful trading career not only depends on the trading system or style that you use but also depends on other intangibles, such as day trading time zones. Understanding the market dynamics during different times of the day will take your trading to the next level.

Think about your trading history and notice if you see a pattern in the different day trading time zones in relation to winning and losing trade percentages. What a day trader must understand is that even if a chart has a great setup, the time at which the trade is placed may be in a day trading time zone which typically starts a countertrend move. For example, many traders who day trade breakouts will be far more successful during the first two hours of the day than any other timeframe during the day. Typically breakout attempts will fail and reverse which will only serve to frustrate the trader and cause you to doubt your approach to trading.