See How to Trade with Level 1 Market Data

What is Level 1?

Level 1 quotes are standard with the majority of online daytrading software at no cost or even a modest nominal fee. This advice is essential to have the ability to appraise the order stream on the store.

Level 1 Window

On before all else glance, it appears simple and to this idea. Let’s move a bit deeper and more dissect each part of the Level 1 Window.

Level 1 estimates the real time bid/ask estimates for securities trading on the Nasdaq and Over The Counter (OTC) Bulletin Board Service. The Nasdaq degree 1 quotation window has been broken into five important components: (1) Bid Price, (two ) Bid Size, (3) Ask Price, (4 ) ) Ask Size, and (5 ) ) the Last Price.

Level 1 Components

Level 1 Elements

Bid Price

This is the amount at which a buyer is willing to execute an order.

Bid Size

The size of the pending purchase order.

Ask Price

This is the amount at which a seller is willing to execute an order.

Last Price

This is the most recent amount at which an order was executed.

Last Size

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

Combining Level 1 and Time & Sales

Time and sales go with Level 1 like a white wine paired with sea bass. To this point, whenever I am saying trading with Level 1, it is implied you have time and sales on the chart.

Why do you need time and sales? In addition to the bid and ask, you also 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 amount cuts through critical levels which can be an indication of strength in the store.

time and sales data

Can You Day Trade with Only Level 1?

Yes.

Talk about a straightforward answer. To furtherqualify this point, you need to analyze the type of share you are trading.

Low Volatility, High Float, and High Volume

Low volatility assets that trade thousands of stocks every one minute and do not have wild amount movements only require Level 1. For example, a trader can place a 1,000 share sell order for example in Tesla, and the bid will not budge. Also, after your trade is executed, you will not see a 10% move in either direction during regular trading session hours.

This level of certainty of amount movement with these high float assets does not require dissecting store depth which is present in Level 2.

High Float

Can You Day Trade Penny Stocks with Level 1?

Low Float Stocks

Well yes and no.

I do not trade low float assets. I recently abandoned this practice after getting my you know what handed to me over and over again.

For me, this decision had little to do with Level 1 and more to do with erratic amount swings that penny assets display.

Enough about me, if you are thinking about trading these penny assets, you could obtain by with just Level 1. This will, however, require you to be somewhat ok flying in the dark.

This is where there are two 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 require Level 2 to identify when a share is likely to run out of steam so that they can exit their trades.

Due to the volatility of the share some traders will make their purchase and sell decisions based on Level 2 as other indicators lag too many.

Level 1 is Enough

There is another group of traders that feel Level 2 is no longer of value. In the late 90s, the majority of orders were real, and there was not the level of sophistication with masking of orders and sending fake buy/sells to alter the bid/ask amounts.

But now, with the advent of AI and millions of orders routed to the exchange just to see if there are potential buyers on the other side – is any of it real?

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 likely somewhere in the middle. The most important thing is just to pick either Level 1 or 2 and master it by practice trading with these off-chart indicators.

As an Investor Should You Care About Level 1?

No.

As an investor or swing trader, you just need to focus on the charts.

My time would have been better spent looking at support and 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 Level 1 is to filter out trades. So how do you do this exactly?

Well, you before all else need a system to identify the assets you want to trade. I do not want to suggest Level 1 will somehow find you winning setups.

But what Level 1 can do for you is quickly identify assets with large spreads. Why are large spreads important to a day trader?

Day trading is a game of 1es, and each tick can make or break your benefit margins.

This ability to keep your margins in the positive is many easier with a share with tight spreads versus a share with a one percent spread.

Let me illustrate this through real Level 1 data.

Google

As you can see the spread in the middle the bid and ask is a tight .16%.

Google Spread

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Bluelinx

Shifting gears into your higher volatility share, understand this bid/ask disperse of.8 percent.

Bluelinx

I avoid these assets with large spreads no matter how great the setup. When the spread is going in your favor, it is an amazing experience. It’s like the share can move a percent or more in a matter of seconds.

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

What’s the Difference Between Level 1 and Level 2?

The difference in the middle Level 1 and Level 2 comes down to store depth. When you are using Level 1, you can only see the best bid and ask.

However, you do not see the orders from all the exchanges. Why do you need to see these orders? If you are trying volatile assets, you need to see how many orders are holding a share up versus those looking to push the security down.

Level 1 Quote Box

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

For each amount, there is an offer of 100 stocks. Not many to go on.

Now, let’s go over and look at the Level 2 screen.

As you can see there isn’t everything irresistible out of that amount two screen. The 1 section of immunity is at the 29.64 and also 29.65 range. 1 monitoring you may create from the Level 2 data would be that there’s the same number of sellers and buyers.

You were likely looking to find a few mad degree two screen. Sudden right.

The amazing thing about that illustration is it is possible to watch orders as little as $29.15 as large as $29.71.

You need to experience this exercise and repeatedly to spot that side is very likely to win the most constant struggle.

In Summary

Whether you trade futures or assets, you use Level 1 because a vital off-chart index when browsing the marketplaces. Unlike other indicators which have clear signs and oversold readings, then you need to construct the muscle for just how to trade together with Level 1 as it’s a subjective index and can be different for every single security.

I trust you’ve found this article helpful. If you want to know more about paper-trading using Level 1 and period and earnings, please have a good look at our site to see exactly how we are able to help.

Good fortune trading.

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