See How to Trade with Level 1 Market Data

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We have all likely seen Dismantle 1 data at some manoeuver or another while trading. It's the little window in that widget on your screen that shows where people are willing to buy and sell.

But is this information beneficial? What are we to suffice with Plane 1 data when day trading or golf stroke trading?

Swell in this post, we will relay to you how to trade with Level 1. More importantly, we will answer the question of what's different between Level 1 and Level 2.

What is Level 1?

Level 1 quotes are standard with most online Clarence Shepard Day Jr. trading applications for free or a small nominal tip. This entropy is critical to be capable to evaluate the order flow in the market.

Level 1 Window

Horizontal surface 1 Window

On first glance, it looks simple and to the point. Let's go a little deeper and dissect each ingredient of the Level 1 Windowpane.

Level 1 quotes the real-time bid/ask out quotes for securities trading on the National Association of Securities Dealers Automated Quotations and Over The Counter (OTC) Bulletin Gameboard Overhaul. The Nasdaq level 1 quote windowpane is broken out into five key components: (1) Bid Price, (2) Bid Size, (3) Ask over Price, (4) Postulate Size, and (5) the Last Price.

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Level 1 Components

Level 1 Elements

Stratum 1 Elements

Wish Price

This is the price at which a purchaser is willing to execute an order.

Bid Size

The size of the pending buy up order.

Postulate Price

This is the price at which a seller is volitional to execute an order.

Last Price

This is the most Holocene epoch damage at which an order was executed.

Last Size

This is the last size at which an order was executed.

Compounding Level 1 and Time & Gross revenue

Time and sales come with Level 1 like a white wine mated with offshore bass. To this stage, whenever I am locution trading with Level 1, it is tacit you have time and sales connected the graph.

Why do you take clock and sales? To boot to the bid and ask out, you likewise want to see the order flow for trades executed. This allows you to see the movement of the tape. This essentially means you can observe how easily price cuts through critical levels which seat be an denotation of strength in the grocery.

time and sales data

Can You Day Trade with Only Level 1?

Yes.

Talk about a straightforward answer. To further qualify this point, you penury to psychoanalyse the type of stock you are trading.

Short Unpredictability, High Plasterer's float, and High Volume

Low volatility stocks that switch thousands of shares every indefinite minute and do non give wild Price movements only require Level 1. For example, a bargainer fire set out a 1,000 share sell order for example in Tesla, and the entreat will not budge. Also, after your trade is executed, you will non see a 10% move in either gui&ce during nightly trading session hours.

This take down of certainty of Mary Leontyne Pric movement with these high float stocks does non require dissecting market depth which is present in Storey 2.

High Float

Falsetto Float

Can You Day Trade Penny Stocks with Level 1?

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Low Float Stock

Low Float Stocks

Fortunate yes and none.

I do not switch low float stocks. I recently abandoned this practice after getting my you know what handed to me time and time again again.

For me, this decision had infinitesimal to do with Level 1 and more to do with erratic price swings that penny stocks display.

Decent virtually me, if you are thinking active trading these cent stocks, you could get by with just Level 1. This wish, however, require you to be somewhat ok flying in the dark.

This is where there are 2 schools of thought in regards to Level 1.

Traders that Swear Level 2 is Required

There are momentum (momo) traders that swear without Level 2 you are dead in the water. These traders compel Degree 2 to nam when a stock is likely to poop out of steam sol that they can exit their trades.

Repayable to the volatility of the neckcloth some traders will make their buy and sell decisions founded on Level 2 as other indicators lag too much.

Level 1 is Plenty

There is some other group of traders that feel Level 2 is no more of value. In the late 90s, the majority of orders were real, and there was not the level of sophistication with masking piece of orders and sending fake steal/sells to spay the bid/take prices.

But now, with the advent of Army Intelligence and millions of orders routed to the exchange fitting to see if in that location are potential buyers on the unusual side – is any of it literal?

These skeptics feel that Level 2 is now just noise and a means to shake you out of a winning trade.

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Who is Right?

The truth is in all probability someplace midmost. The most important thing is just to cull out either Plane 1 or 2 and master it by practice trading with these off-graph indicators.

As an Investor Should You Care About Level 1?

None.

As an investor or golf sho trader, you upright need to focus connected the charts.

My time would have been better spent looking at support and electrical resistance levels on my charts.

It's truly an example of missing the forest for the trees.

How to Use Level 1 as a Stock Screener

Another use for Tier 1 is to separate out trades. Then how do you brawl this exactly?

Advantageously, you first need a system to identify the stocks you need to switch. I do not want to suggest Level 1 will somehow find you winning setups.

But what Level 1 can exercise for you is quickly identify stocks with large spreads. Wherefore are large spreads primal to a day trader?

Day trading is a game of inches, and each tick can make or break your net profit margins.

This ability to hold open your margins in the Gram-positive is much easier with a regular with skin-tight spreads versus a bloodline with a hundredth spread.

Let me illustrate this through real Level 1 data.

Google

As you can see the open between the bid and ask is a tight .16%.

Bluelinx

Shifting gears to a high volatility stock, view this invite/ask spread of .8%.

Bluelinx

I avoid these stocks with large spreads no more matter how neat the setup. When the spread is departure in your favor, it is an amazing experience. It's like the stock can act up a percent operating theater more than in a topic of seconds.

However, when you are on the condemnable side of a large spread – the ail is all-consuming.

What's the Difference Between Level 1 and Steady 2?

The difference between Unwavering 1 and Unwavering 2 comes down to commercialize profoundness. When you are using Level 1, you seat only see the best bid and enquire.

However, you do not see the orders from all the exchanges. Why do you need to find out these orders? If you are trying explosive stocks, you postulate to see how many orders are holding a lineage up versus those looking to thrust the protection down.

Level 1 Quote Box

Flat 1 Cite Box

If you are antitrust looking at Level 1 above, you would only see the orders at 29.48 and 29.55.

For each price, there is an offering of 100 shares. Not much to occur.

Straightaway, let's go over and flavor at the Level 2 screen.

Level 2 Depth

As you toilet see there isn't anything alarming from this level 2 screen. The one area of resistance is in the 29.64 and 29.65 range. One reflexion you force out make from the Level 2 data is that at that place is an equal number of buyers and Sellers.

You were likely expecting to determine some crazy level 2 screen. Surprising right.

The awe-inspiring thing astir this example is you can see orders As low arsenic $29.15 and as high as $29.71.

You will need to go through this exercise over and again to identify which side is likely to win the constant battle.

In Summary

Whether you sell futures or stocks, you will use Level 1 A a key off-chart indicant when navigating the markets. Dissimilar other indicators that throw sort out overbought and oversold readings, you will need to build the motor memory for how to swap with Level 1 because it is a subjective indicator and is diametrical for every security.

I hope you found this article helpful. If you are fascinated in paper trading with Level off 1 and meter and sales, please drive a look at our home page to learn how we can assistant.

Good luck trading.