Tape Reading 101 || Level 2 and Time & Sales

what's up everybody this is gonna be a very good video on how to read the tape which consists of the time and sales and the level two in order to make better trading decisions this is something that every trader has to understand so you can make trades based off of the strength of buyers and sellers over key levels and reading the tape is also going to help prevent from making stupid trades and avoiding false breakouts over key areas on a chart in this video i'm also going to go over how the market auctions and how it facilitates trade so if you're new here make sure to drop a like on this video share it with other traders and also follow me on instagram at investortrade i post daily training recaps along with very good trading tips and tricks the link to this will be in the description below definitely a very good resource and without further ado let's get right into the tape we first have to understand how the market facilitates trade there's two different types of orders and there's two different types of participants in each transaction on the open market the first one is a passive order and this is something we call a limit order we put a limit order on the market it's seen through the order book and it's only seen from the level two if i want to buy something at a specified price or better i'm a passive participant in the market i'm putting a limit order to buy either on the bid or if i want to sell something i'm putting a limit order on the ask now the aggressive order is a market order this is a different participant a market order will be seen from the time it sales and that is a completed transaction so everything that we see on the time and sales is a completed sale and that's a completed transaction on the market from a market order hitting a passive limit order sitting on the level two so limit orders are adding liquidity to the market because we're obviously fishing we're putting our order on the market and as soon as we put that order on the market you're gonna see it on the level two market orders remove liquidity from the market because if you're an aggressive participant you are market ordering in and you're looking to buy to from somebody that's sitting on the ask selling on the ask or you're looking to sell a market order to someone who's looking to buy on the bid for every single transaction there's a buyer and there's a seller there can never be more buyers and sellers there can never be more sellers than buyers there is an equal amount of participants for each transaction that's one buyer and one seller so here we have a screenshot of a level two now no matter what platform what broker you use the level two is going to be the same even for any stock any future any option any market the level two will show you the same amount of information this is for a stock ticker symbol w k h s and the left side let's just split the screen up in half so on the left side we have the bid and we have the buyers and on the right side we have the ask which are the sellers keep in mind these are passive participants they are passively waiting for the market to come to them they have a limit order they're looking to buy on the bid and a limit order to sell on the ask and we have exchanges and how this works is if you put an order through your broker to buy or sell something your broker will send it to the exchange and the exchanges are where the orders are routed through and the exchanges put them on the market there's many different exchanges and that's not really relevant in reading the tape but if you see these weird symbols these weird names that look like ticker symbols these are the exchanges the orders are being routed to so let's talk about bids first or the buyers now we have the column which is bid and we can see the price of the stock so the bid price is the price that the buyers are willing to buy the stock for and each bid price has their own bid size we could see it by bs and the bid size is the amount of shares that the buyers want to buy and you have to multiply each number by a hundred so what this means is that on the edge x exchange there is a bid for 39.95 and someone or multiple people are looking to buy 300 shares the next one we have the nasdaq same thing someone's looking to buy at 39.95 100 shares and it goes on down the list so the first bid and the first ask or what we call the inside bid and the inside ask we could also see that on the level one data by the bid and the ask which will show the price and then the bid size same exact thing on the ask size but the ask are the sellers so we have the ask and we have a price that's the price the sellers are willing to sell the stock for and the a s is the ask size on this column is the amount of shares the sellers want to sell you have to multiply it by a hundred so you have 200 sellers or someone or multiple people looking to sell 200 shares at 39.99 and you have someone that's looking to sell at forty dollars 343 on the ask so you have to multiply that by a hundred which is uh thirty four thousand three hundred so that's pretty much the basis to the level two which is the order book and now we have to go over the time and sales which we could see right here so one thing i want to mention about the time and sales is that these are completed transactions where market orders hit the limit orders that were on the level two the time on the time and sales is not very important as everything that's printing on here is gonna be right now in the present it's not gonna be in the future it's gonna be in the past as you go down the time it sells but every order coming through is happening at that instant so time is not really important what is important is a couple of things so on the time and sales we have the price that the completed transaction was on and we have the size which is how many orders or how many not how many orders how many shares were in that transaction so on the time and sales is different than the level two because the number on here does not have to be multiplied by 100 this is the true and actual order so we use the level 2 and time and sales together as a very good tool to gauge if sellers are strong our buyers strong is sellers week our buyers week and this is only important on key reference areas on a chart if you're looking at this at a random price where you know price is really you know chopping around not doing anything level two and time and sales is completely irrelevant you have to do it at an important area that makes sense on a chart whether it be support whether it be resistance whether it be a high whether it be a low it has to be a key area and what's key is you want to see intention so intention means are there huge sellers sitting on the ask are there huge buyers sitting on the ask who is getting wiped out who is getting taken away is it a fake order is it a real order so i have a love hate relationship with the level two because these are orders that are not really completed you could have somebody that's spoofing the market making themselves look like a very heavy seller when in all reality they could hit one button cancel their order and boom it completely depe disappears from the level two it scared the participants and they're basically on the other side of the market soaking up and leveraging in their position but that gets more in depth that's something i talk about in the course the what we use this for is to see almost like a great wall of china is there hue is there a huge wall coming up to the price of the stock and how do we know that here for example on wkhs we have a seller sitting at 40 for 343 shares 16 shares and then 14. you have to multiply that by 100 1400 1600 and 34 300. that's going to be a huge wall what that means is there has to be very aggressive buyers wiping away those passive sellers which are sitting on the ask that is the only way price is going to break 40 dollars or if those passive sellers like i said remove their passive order and the market now has not a very strong wall to get to breakthrough to pass through 40. if this video gets 732 likes i will do another level 2 video with all examples now that you get the point of what to look out for i'll show you real live trades on how to utilize the level 2. 732 likes on this video to get more contacts with this trade tesla was all-time highs so usually what i like to do is whole psychological numbers 800 900 1000 especially at all-time highs are going to serve as key reference points for me and again this has to be with context you it's only going to be relevant if you see huge sellers sitting at the 900 dollar mark so let me try to pause it as price is coming up to 900. i mislabeled this price level to 900 and 80 cents this is meant to say 900 so briefly what's going to happen here is we failed to break uh break ends hold above 900 which is a very strong side of weakness so let me play it out let me try to pause the video when we get close to 900 just so i could show you what the ask size was like right here so i missed it by a couple of seconds but as you can see right here we have an ask size if you look at the bottom right of 282 59 44 10 5 all stacking through the 900 mark so think of that as a huge wall and for us to pass through that brick wall and knock it down we have to have tons of aggressive buyers buying from the sellers sitting at the ask so what you want to see if the breakout is going to continue is two things you're going to want to see these sellers get wiped out you're going to see want to see 900 come through on the time and sales but you're going to want to see 900 stay above and for it to act like support while the buyers on the bid as price is coming up get stronger the one thing you do not want to see which means a sign of weakness is price to break through 900 not a lot of orders coming through and you don't want to see any weak buyers on the bid you don't want to see light size and you do not want to see heavy sellers sitting on the ask so watch what happens as we break 900 this is a false breakout meaning we get above it and we completely reject which set up to be a very very nice short opportunity another key thing that you could use here for the time and sales is the speed of the of the sales if you start seeing the time and sales speed up like crazy like almost like a ball of energy and price cannot continue moving higher that is a sign of absorption meaning you have orders coming through yet you have a hidden or passive seller on the ask which we're not going to see absorbing all those orders so watch what happens we break 900 right now and you know no heavy size on the ask buyers really are not stepping up either but watch 940 trades and there's really no orders coming through above 900 it really volume came through so that order got absorbed that sell order and if there is zero follow-through now to the upside that is a key sign of weakness a key sign of rejection and more than likely if you're in this trade long you're buying a breakout over 900 that is your sign to either get out or open up a short position because this is going to be a very important failed breakout high volume with no follow through is a sign of a reversal so fast forward this you're going to see what happens i mean that was the high we failed to stay above 900. sellers were very weak they tried taking us above those buyers yet there was somebody sitting there absorbing those buy orders hence the buying volume pressure and price started selling off and then came down going into you know right after that so if i fast forward it show you what it looked like that 900 was the high that was also the heaviest volume of the day so here's another example on tesla this is really not so much of using the level 2 in time and sales but this is using it in conjunction with market context and with understanding the auction process so price was selling off into this demand zone let's say we never got long at the 660 once we came to the first test of demand demand means buy you want to look for a nice buying opportunity down here now price is selling off we're coming down into the zone volume is increasing inside of demand volume and price are your key stories as the speed of the of the tape or the time and sales comes through you should see more volume start to flood as more completed transactions come through so if we start selling off yet buyers are holding above we double bottomed in demand there was no follow through to the downside that is a good sign that the market may reverse here especially that we are at this demand and balance which is the core to my trading strategy i don't use the tape so much with supply and demand however it's very important to understand it with a strategy and with market context to understand each participant interest in the market because we could catch very nice reversal points like we did at this double bottom at tesla demand it was a beautiful bounce right at the 661 demand zone wkhs to get more context resistance as that forty dollars it's a whole number this also was the high of day from the day previous so very key area of resistance a break above 40. this broke above it but after three or four tests so this is another thing people look to you know buy on this breakout but you have to make sure that buyers are actually buying on this breakout and you join them you don't want to hop in too early if there's not really buyers buying this because then you're gonna get faked out and if you're not sized appropriately and you don't accept your risk you might have to hold a little pain for a quick little pullback so watch what happens there's not too much size on the ask however price broke above 40 volume was spiking it was the highest volume of the day yet not a lot of tickets were coming through on the time and sales so fast forward this we break above 40. what you want to see on a breakout over a key level is priced to really push up above that that area bid stepping in and 40 consistently coming through on the time and sales consistently with heavy size through on there and you don't want to see any strong sellers sitting on the ask so volumes coming through selling pressure is increasing on this candle here we're failing to really hold above 40. a breakout should happen right away as more and more buyers come to the market we can confirm it with volume but this volume the highest of the day is really not getting anywhere these buyers are not getting rewarded and price momentarily stalls out at this 40 mark here's another test of 40 really no heavy size on the ask so this is looking like a nice move volume is starting to increase however price is still having a very hard time at this thing for me the best trades work out right away we break over a key area it has to work out right away you want to see price keep ticking higher and higher meaning bidders are bidding higher and higher as price is increasing and here's the break of 40 so we're finally above it this is the true breakout see how price keeps ticking higher and higher so what you want to see here is now look at the buyers now the bidders are bidding kind of higher sellers are there yet look 130 sellers sitting at dollars and twenty cents boom he was taken out volume starts increasing as we can see with the green prints and i know this is later in the video but green prints do not mean buy on think or swim on other platforms they mean buy however on think or swim buy just means an uptick and uh green just means an uptick and red just means a downtick boom we tick up higher bidders are getting stronger as we can see here not a lot of sellers sitting on the ask as price pulls back it gets bought up by the buyers and as price moves higher we're seeing volume coming in we're seeing tickets come through on the time and sales and we're not seeing any obnoxious really heavy size sitting on the now once we are over a key level this is where resistance becomes support you want that area to act as support if price pulls back and we want it to hold that level we got some nice follow through on this name and if i fast forward to later in the day if you look what happens the minute we broke over 40 we had a nice dollar fifty move two dollar move actually on a forty dollar stock so very very nice move then we pulled back and we held the 40 acted as resistance finally then broke above high a day by end of the day for another dollar move higher so if anyone is going to complain about a two dollar move above a key level for scalping with no real pullback then i don't know what to say but this is really for scalping only this isn't for a directional trade this isn't for a trend trade this is really for scalping over key areas to avoid false breakouts i'm going to end the video here i could go on all day long showing you examples of many different tickers save that for another video if this does get 732 likes i'm gonna end it here if you learn something just drop a like on it subscribe to my channel and if you really want to learn more check out my website in the description i offer a very in-depth and educational course but besides that i'll see you all at the next video peace

Channel: Carmine Rosato

Views: 86,727

Keywords: carmine rosato, supply and demand, ricky gutierrez, learn plan profit, ross cameron, warrior trading, tim sykes, day trading, stocks, stock market, day trading recap, trading recap, thinkorswim, tdameritrade

Id: Rn5rMtwI81w

Length: 18min 41sec (1121 seconds)

Published: Sat Mar 06 2021