Guide to Day Trading Strategies

Image showing a heavy seller (25,200 shares) sitting at 10.00, just 
above the current best ask price. Image from Lightspeed.

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H O W T O D A Y T R A D E
57
Image showing a large buyer (179,600 shares) sitting at 1.82, just 
below the current best bid price. Image from Lightspeed.
In addition to seeing the number of buyers and sellers at the current bid and ask, we can also 
see how many buyers are lined up below the current price, and how many sellers are lined up 
above the current price. If for instance we see a 121,300 share seller sitting at the ask price, we 
may recognize that seller as a form of resistance. We could decide, based on that information, 
that this may not be a safe place to enter the trade. Alternatively, if we see a big buyer sitting 
at the bid price we may feel con
À
dent there is somebody supporting the price for a long entry. 
Large orders on the Level2 can give insight into levels of price support and resistance. Price 
support and resistance on the Level2 will be most valuable when it lines up with support and 
resistance on the chart. When they do not line up, it is possible that there is simply a big buyer 
or seller sitting on the stock. It is also possible that the order is placed there intentionally, to 
give traders a false sense of con
À
dence. This is called spoo
À
ng. Traders that are spoo
À
ng will 

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R O S S C A M E R O N
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put out large orders with the intention of manipulating the market, and never actually allow the 
order to get executed. If the current trading price begins to move close to their large order, they 
will cancel the order and move it down a few more cents. Spoo
À
ng is an illegal form of market 
manipulation. Since manipulation does exist using Level2, I only start looking at Level2 once I 
have found a good chart pattern.
I 
À
nd my setups by looking through stock scanners and looking through charts. However, once 
I am ready to take the trade, I am only looking at the Level2. I already know the price I want 
to buy at, and where my stop price is. So, all I need to see is what the Level2 can tell me about 
market sentiment. Is there a heavy seller sitting right where I want to buy? If that is the case, I 
will wait for those shares to get bought up, and just before they are gone, I will send my order 
and jump into the market. If I am in a trade and I suddenly see a large buyer come in and prop 
up the price, I will recognize that as a new level of support. Regardless of the support level I see 
on the chart, the buyer on the Level2 has stepped up to provide another visual level of support. 
Since we are trading simultaneously with many other traders, we can all recognize the subtle 
cues given on the Level2, and typically will react similarly.

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