What's up, Everyone Ross here from Warrior Trading, so in this episode, I'm going to break down for you: how to use level 2 to improve your trading. All right? So we're going to jump in here on how to use level 2 to improve your trading. For those of you out there that are beginner traders, I'm going to try to be concise but comprehensive. I'm not going to be able to hit every nuance of level 2 that I've learned over all my years of trading in a short video.

For those that want to learn more after you've watched this video, I encourage you to go and watch my recaps, go and watch my live trading morning shows, And for those that want to take the leap and become a member, over at Warrior Trading. We've got a whole archive library of live trading, plus the curriculum, and that's where I go in the most depth of just trying to give you the chance to download everything that I know about trading into your brain. But right now I'm going to try to go quick, be concise, but give you enough to make you feel like you've really learned something in this video. and I hope you do so.

let's go ahead. Level 2. What is it? All right? So this is the S P 500 on the left here top corner. When I'm trading, this is what I'm mostly looking at are level two windows.

You don't even see charts on this window. I've got level two and I've got scanners. The scanners are the proprietary software over Warrior Trading that I use to find stocks to trade every single day and when one hits my scanner, I pull it up Agri and the first thing I'm doing is I'm looking at the level two and I'm asking myself, can I take a trade? Can I manage risk and how much will this stock go up Now I can't do all of that without looking at the charts so I keep charts up on a monitor just above my trading screen. usually for two stocks, one on the left, one on the right and so I will look at a chart because that helps me understand how much a stock is up.

It helps me understand where we might see recent support like down here at 7, 6, 95, 7 where we might see resistance 749. But when it comes to actually executing the trades and managing open positions, I'm using level two. So level two is an island. This right here is an island.

Anyone who wants to buy or sell shares of the any of these stocks, they're going to do it right here. This is all of the buyers on the left and these are all the sellers on the right. The left is the bid, the right is the ask and this is the tape. The tape is the time and sales.

So every order that goes through is going to be on the tape. Now I want to, actually, um, open up my uh, trading classes. Uh, slide deck here. So uh, students that are part of the Warrior Pro membership have access to this course which is 1400 slides long and also to the starter course which is about 400 slides long.

So let's look here at level two. But before we look at level two, let's talk for a second about level one. So let's back this out. So what I'm gonna do is, I'm gonna look at this video.

This is a, um, a cropped image. So there's the whole thing. So this is level two, right? But we're going to crop this down and just look at the first row which is level one. So what does level one tell us? Well, this is the first depth of the market of the island.

So on the island where people come to buy and sell on one side of the island, you have all the buyers on the bid. On the other side, you have all the sellers on the ask. Now, if you just, uh, want to buy or sell shares, you've got all those people lined up on the bid and on the ask. So there's people actively saying I want to sell.

I want to sell And this is how much I'm willing to sell for. And this is 226 on the ask. So if you want to buy right now, you don't have to sit with all the other buyers at 225 and wait. You can just go ahead and buy from someone selling at 226..

Remember, every transaction has a buyer and a seller. So when you buy, you're buying from someone who's selling to you. When you sell, you're selling to someone who's buying from you. So this is our bid and this is our ask.

The bid is the highest price that buyers are willing to pay and when we look at it on the level two, we can see the price and the number of shares that they want to buy. In this case, it's 6 700. we always add two zeros and we can see the market maker that they're using to execute their order. So they don't actually go to the island.

They send someone for them and that person is you know standing there. But it's all digital. Of course, it's not really down on the exchange, it's the way it used to be. It's all digital.

So you've got Arca, which is your market maker and they're wanting to buy 6 700 shares at 225 and then you have the same market maker also executing a sell order for someone at 226 for 1100 shares. Now, market makers provide liquidity by being on both the bid and the ask. At the same time they create the spread. They get compensated for the risk of holding the stock by being able to sell shares across the spread to make money.

As a retail trader, we use market makers to execute our orders. We can't ourselves do it without this intermediary. So on the level 2, we can see the market maker, the price, and the shares available. That's level One data.

Now, level two data is when you can go ahead and see. let's go to Crop Image, not just the first depth of the market, the best buyer and the best seller. But you go one row down. now.

one row down. you see, well hold up. There's actually two buyers at 225, one is for 6 700 shares, the other is for 800. And there's actually two sellers at 226..

Well, what if we go another row down, we'll go two more rows down. You see, there's four buyers at 225. So 225 now is getting some psychological support. There are four buyers all wanting to buy at the same price, but there's only two sellers at 226.

So who's got the upper hand? here? It seems the buyers are a little stronger, and if you notice over on the side, this is the tape. These are the actual orders that are going through. So when an order goes through, it's colored based on whether it occurs at the bid or the ask. So let's look at this right here.

For the color scheme, Let's see: orders at the Ask or above are green. Orders at the bid or below are red. Orders between the spread are typically white. They're between the spread.

So orders that occur between the spread a little indifference, right? they're They're not strong enough to be at the ask. they they kind of met at the midpoint of the spread. Then they happen. So it's not unusual, but it doesn't communicate the same sentiment as an order that's either red or that's green.

Alright, so let's go back up here. So back on this window here in terms of color scheme: the first row is green and the second and third and fourth row are green. Why? Because they're all at the same price. The the first tier is green, The first tier of the level two is green.

The second tier is red, easily distinguishable. Large stack at the first tier, smaller stack at the second tier, and very small at the third and fourth tier. On the ask side, it's the same. The best tier is green, but in this case there's only two sellers at the best price.

So green is only two rows deep. and then you've got three rows of red, so a little bit more there. and then you've got one row of yellow and a row there. and then from there, that point as it goes down is just gray and you can see over.

On my light speed platform, it's sort of the same so you can scroll or you can drag the window to make it larger to see more depth. And depending on the market data subscription that you have, you can maybe see more depth or less depth, But this to me is is adequate. It's more than enough you can see what you need to see, and in this case I see bid support at 47 And right there. Boom.

A big green burst of orders that went through on the tape popped up to 53, where there was another little stack of sellers. You could probably tell fairly quickly that learning to read level two isn't something that's going to happen overnight. You can learn the basics of the bit in the ask, the spread, the color scheme, but then there's a degree of gaining experience. The more you read it, the more you recognize these patterns, the more familiar you get with these patterns and what type of price action they may or may not be predicting, especially when that coincides with certain chart patterns.

So we're not forgetting about charts, but in this video, we're talking really specifically about how to utilize charts to reaffirm. So how to utilize level two to reaffirm what you're already seeing on the charts? All right. So now, let's back this out again. So when I first pull up a stock, one of the things I'll be looking for are: if there are really big.

well, a couple things. Number one: if there's big buyers or big sellers, and if it's thinly traded or thickly traded, thinly traded stocks have level two where there's often only one two, uh, one, one, or two um, orders at each tier and the tiers are spread out so there's not a tier at every cent. They're spread out as you go up the level two in higher in price, or as you go down, you go lower in price. And there's a spread here between the bid and the ask.

So let's look at an example of another one from today: a Drts. So this right now has a five cent spread and above 60 is 65 69, 68, 1495, 1501 1524 1564 1588 1613 It doesn't take much for the stock to go from 1460 to 1613. I can assure you it's not the same with Bank of America. Bank of America is going to be much more thickly traded, much much more thickly traded.

This is a stock that will not move quickly. The S P 500, very similar. These are not going to be fast-moving stocks, really under any circumstances. They are thickly traded.

So what we know is that stocks that have thinner level twos typically have lower floats, the shares outstanding. the number is lower, typically less than 50 million, whereas more thickly traded stocks such as Bank of America 8.1 billion have many, many shares outstanding large market caps. And while that creates good opportunity for lower risk investing for long-term investors, pension funds, hedge funds, things like that for active traders, it's not what we're looking for because as an active trader, my job each day is to try to find the most volatile stocks. So I'm looking at stocks that have the highest relative volume and I'm looking at the stocks that are the top gainers.

Ll is our third leading gainer in the entire market today, up 31 percent and note that it's the stock that I made the most money on. You're not going to make a lot of money trading Bank of America or the spy, and I didn't really make a lot of money today. All things considered. Between my two accounts, about nine thousand.

Uh, my results obviously are not typical, but that for me, isn't uh, really that great of a day. Well, the biggest gainer's only Uh 33. Well, that one's 32. the biggest one is 63 percent.

and if we pulled up that chart, we'd probably see that it's not really been that interesting or has given that many opportunities. It looks like, uh, well, in this case, the bulk of the move was, uh, later in the day. So at this point, I wasn't actively trading anymore. So that actually did give some opportunities.

But in any case, I missed it because it wasn't in the morning. So my focus each day is trying to find stocks that have the potential to make a huge move. And then even if I can only capture a small piece of it, a small piece of a big move is enough to survive. A small piece of one percent is not enough to survive.

You can't make money trading on really tiny moves. so we're looking for bigger moves. And so when I see a stock hit my scanners, one of the first things I'll check is the level two. So I'm going to look at the level two and I'm going to ask myself, is this thinly traded? Is it thickly traded And it doesn't matter how much volume you can have 69 million shares of volume? this is a more thinly traded level too.

This is level two where if we have the right chart pattern, we could quickly see a move up to 475 or five. That's a ten percent move. Drts we could quickly see a move up to 15 or 16. That could be five ten percent move.

So these are the type of stocks I'm going to be more interested in. So looking at the level two can tell me pretty quickly whether a stock is thinly traded or thickly traded. Of course, I can see the flow listed right there as well, but it also communicates that so more thickly traded there and then what we're going to be looking at are, um, the size of the orders. So let's see.

Um, let's look here. Where was this? Oh, I'm going to go into, um, let's see jump up here. So we've got some order routing conversation here. I'm going to leave that alone for right now.

Institutional Traders Transaction sizes: Okay, so here you have a 1.1 million share sell order. Now if you're not using level 2 data, you might have bought this at 144 saying hey, it's up 25. Who knows. Maybe this is going to be like, uh, this Sdh and rip up to 2.25 I'll make a nice profit.

Probably not not. If you've got a 1.1 million seller sitting there at 144, that's a huge order and until that gets bought up, this thing's not moving. it's not going to go that much higher. Yeah, sure, there'll be some people that buy because they don't see it, but not that many.

Now, on the other hand, what if that was on the bid? Well, that's psychological support. So that means I could buy this at 144 145 and I would know with a 1.1 million share buy order that I could probably safely hold it with only a very tight stop of two or three cents. Maybe I could even buy a hundred thousand shares. Now if it comes down to 144 if that's where the bid was or 142 and I start to see that 1.1 million share buyer get sold into it goes from 1.1 to 1 to 900 to 800, 700, 600, 500, 400, 300 As it starts to thin out, I might decide to sell because once that support breaks, it could drop.

and once this resistance breaks like a break in a big way. So seeing the bids and the size of the sellers is helpful in interpreting where we might have psychological resistance. 600 000 shares for sale there at 10 right or where we might have some support. So when I trade, I am looking at the Ask price.

So I buy at the Ask because if I want to get in and this stock is ripping, I'm not gonna get filled. If I sit on the bid, I can put an order on the bid right now and I'm not gonna fill. But if I press the buy button for 70, I will fill instantly. Here I'll show you, I'll give you an example.

All right. So there's 60.. see my order's just sitting there and I'm not filling. But what if I want to buy at 70? Watch this Boom.

I'm long at 70. instantly instant fill. So I buy at the Ask and then to get the best price on my exit, I'll try to sell on the Ask as well. I'll put a five cent profit on that.

I don't know if I'll get filled this isn't. You know, a good trade by any means here. but just for instance, I buy on the Ask because when I want to get in, I want to get in and I try to sell on the Ask to sell into strength. As a Momentum trader, we buy high.

We sell higher now selling on the ad and there we go got out five cents a profit. So selling on the Ask works when the stock is strong, but it means you're sometimes going to be selling too soon and so it's not a problem in my opinion to hold and wait for it to top out and then sell a little bit as it starts to pull back because that way you know at least you held through the bulk of the move whereas if you sell in the Ask it might keep going like it just went to 14.90 Well shoot, I sold at 75. I could have waited to sell at 90 and I would have made more money and 100 shares were bought at 90.. So you know, son of a Gun, I sold too soon.

All right. So maybe I should have sold half 50 and then held the rest to either sell more as it kept going or as it comes back down again that that gets more into position management which isn't really about level two. but I just wanted to make that note that my eye is at the Ask and watching the tape and I also uh, even when I'm selling, I'm still focused on the Ask price. So now let's look at a couple of examples through the Warrior Pro curriculum.

Students have access to my live trading archives so you have uh for those that are interested. If you join you would have a ton of examples to look at, but here are a select few examples of large sellers. So let's see. Um, I've got a couple different ones here.

I'm gonna pull this one up. Um, all right. So let's jump that out. All right.

So let's see. All right? So this one and this ends up being a little bit of a dip trade. So this is 9, 29, 56. We're right at the opening bell, the bell is gonna ring.

We're gonna have a moment of pause right here and then all of a sudden I'm gonna press the buy button. Why? Technical pattern here is along for the breakthrough: Ten Dollars Target 1065 the pre-market high. Now I press the buy button very quickly and then I realize uh oh, there's a 59. There's a 500 000 share seller right there.

I try to cancel the order, but it won't let me cancel it. The order executes and now I'm in. Okay, well, it's a small position of 3 thousand shares to start. I put an order at ten dollars, so it's going to put it.

Probably move this up to ten dollars so it's going to be ready to go. but now we're pulling back a little bit. so as we dip down, psychological support will be at 950.. I can add off of psychological support at 9.50 with a stop at about 9.45 so watch right here.

I'm going to add down there. now. I've got 6 000 shares with an average of 9.78 It's important to start with starter positions that way you can afford to add if it pulls back or add if it goes higher. If you go in full size right away, you can't you can't maneuver.

So now I'm coming back up here and watch 85 and 95, 85, 95. But that that seller that 600 000 share seller. He's still there. Now It's 750 000 shares and it's not just one, it's one, two, three, four, five sellers.

I gotta sell here because that seller's not breaking. So what am I going to do? I'll give it a second and then I sell at 98. I sold at the Ask at 98. got a good exit.

Happy with that. Got green on it. So profit was probably before I sold like eleven hundred dollars or so. Let's see.

yeah, eleven hundred dollars. So a small profit. Nothing crazy. Uh, but that uh, that seller there, if you were just using your charts you wouldn't have seen it and that was a problem.

All right, let's look at another one. let's see. all right. So we'll do a couple more quick examples.

All right. So on this one on mark we had a seller here at 50 and watch it get bought up. It's it's Nasdaq, but it's also Edgex Antarctica so it's about 100 000 shares. watch them get bought up and I start adding right there as they start getting bought up I add and watch as it breaks.

This is that boom breaking through a level instant to 55. that's five cents instantly. Now with ten thousand shares, that's 500 bucks. I could take that off the table right here and be happy.

There we go, there's 500. Maybe it goes a little higher Again, Maybe I should sell half, hold more for a bigger move, but maybe I could take the 500 and pay myself. All right. Here's another one this is.

this is a powerful one. All right. So on this one, Uh, this is going to be a little bit complicated. The stock was halted.

Not going to get into halts on this video, but it was halted. It resumes, it dips, and I look to buy the Uh the price there which is 1029.. I add there for the break at 10 29 assuming an instant break. but I'm wrong.

and what I notice is that there's a bit of a wall. There's buy orders going through, but it's not breaking. That's called a hidden seller. You can see you can visualize it on the level two because there's a sell order, but the stock is not breaking.

Now, these could be a problem because we don't know how big that cell water will be. but think of that dam. The water is being held back right now and if it breaks this level, if it breaks 29, what's going to happen. It's going to shoot up.

So if it doesn't break and that's just resistance then I'm in a little high So I do try to unwind half the position at 28 to reduce my risk. and then what I'm going to do is I'm going to add back on a dip. So again, this is a little aggressive of a strategy to add back on a dip. But again, this isn't really a strategy class right now.

this is more of level two. So now what we're going to look for is this to curl up through 25 and watch what happens when it breaks 25. added there 8. Now 18 is my average added at 19.

What we often see is tap, tap and then break. So there's 99. I mean this was instant. This instantly went up to 11 bucks.

Let's back that up one more time. Look at that. look at that. I mean that's the water broke and it snapped.

And so for traders using level two, that right there presented an opportunity, right? So I think that that, um, I hope is motivation for you to keep learning about level two to keep watching. Uh, hopefully the morning show. The recaps and if you decide you wanna learn more and be a student over where you're trading, we'd love to have you join Warrior Pro Membership gives you access to my curriculum of classes, which is essentially me putting everything I know about trading into this series of of classes. It's It's really a robust and very comprehensive program.

It's not about being concise. Some of the classes are long, they're detailed, they're nuanced, and they're for traders that are looking to learn every bit they possibly can about the market. So I hope you found this interesting. Please hit the thumbs up if you enjoyed it and I look forward to seeing you guys.

Uh, for the morning show. And if you haven't already checked out the newsletter again, you guys are welcome to check that out. Where did I put that right here? So members on the newsletter will get emails for uh, recaps, watch lists, morning show you get. You get uh, emails of help, videos, live trading archives, and things like that that occasionally we give out just people that are on the newsletter that don't go on Youtube.

So make sure you're subscribed to the newsletter and I hope you're also subscribed the channel. so you get the notification when I go live which is every day for the morning show. All right, I hope this was a helpful video. I will see you for the next one using level two.

You can get really good at capitalizing on opportunities, but you need to build level two around a strategy, so I want you to check out these two videos: Number one: how to buy the dip and number two: the simplest strategy for beginner traders. Keep studying, keep learning, have fun, and make sure you tune in every morning Monday through Friday for the morning show right here on Youtube.