What Beginners Get Wrong About Level 2 💥 Day 4 | Small Account Challenge transcript

let me ask you a question how much would you love to be able to see into the future of the financial markets to be able to know with certainty what the price is going to do next in fact the most successful traders in the market seem to be able to do exactly that they've developed an edge in the market and that edge comes from pattern recognition learning that when this happens this follows and when you develop that recognition of a pattern every time you see that pattern you are now able to predict with some degree of certainty what's going to happen next in today's episode I'm going to teach an in-depth guide into the tool that I use in my own trading every single day to try to attempt to predict where the price is going to go now I'm not trying to predict where the price is going to be a week from now or a month from now I'm an active Trader so I'm just focusing on where the price is going to be in the next 5 minutes the next 10 minutes the next 15 minutes but you know what I've been able to do it with a pretty high degree of success my Edge is a combination of stock selction trading very specific technical patterns using Candlestick charts and using this one tool that I'm going to share with you today the tool is level two when you learn to read level two you are visualizing and reading the depth of the market you can see all the buyers you can see all the sellers and you can interpret sentiment from all of those orders so much so that you can begin to predict where the price is going to go next now I'll tell you there's no such thing as a strategy or a tool that's going to be right 100% of the time and mine is no exception and level two is no exception but using this tool I am doing right now about 68 70% accuracy and in my small account challenge today is day four in day four I have locked up another Green Day I now have five trades under my belt four winners five one loser which gives me 80% accuracy and so with 80% accuracy right now I'm pulling out all the stops because for this small account challenge I can't afford to make any mistakes I can't add more money into the account and I have a goal of growing this account to $25,000 and while I'd love to grow it to $25,000 as quickly as possible what's more important than speed is actually finishing this Challenge and Crossing that goal and so for this challenge I'm focusing on the area of my strategy where I have the highest degree of conviction so I'm focusing on the absolute best a quality stock the best setups and using the best tools so let's go ahead and get oriented here on the screen we've got two platforms on the left we've got uh day trade Dash which is the software that I've developed uh that I use every single day for my trading this is for charting scans breaking news it also has my chat room and my live audio video broadcast for members at Warrior trading and then on the right here we have thinker swim thinker swim is the platform that I'm using for this current small account Challenge and thinker swim does have a level two window as you can see right down here at the bottom so this is the level two right here so what I'm going to do is I'm actually going to grab a screenshot of this let's see let me let that fade all right I'm going to grab a screenshot and then we're going to start annotating the screen grab all right so I'm going to paste this here and let's zoom in on what we've got going on all right so I want to zoom in on this here I'll make this full screen this is our level two window so what's going on on the level two what does all of this mean this is a lot of data you know what I'll tell you when I got started when I first started trading I didn't know anything I didn't even know level two existed I knew nothing about it I thought when a stock is trading at $112 it means it's trading at $12 I didn't understand even at that time quite exactly how it worked with a bid and an offer but for those you guys who perhaps know more about the market than I did when I was getting started every stock does have a bid and an offer a bid is what buyers are willing to pay and the offer is what sellers are willing to receive and they create the level two so this right here is level two and the current quote of this stock is 1466 all right now what's interesting is 1466 is actually the last price that went through that was the last price but if we actually looked at the level two what we see is that this stock is is showing 1465 by 1466 right here so it has a 1 cent spread there's only a 1 cent difference between 65 and 66 in the case of the bid right here the bid is where buyers will post orders if you want to buy a stock you can buy by sitting on the bid you could say this is how much I'm willing to pay for this stock I want to buy does anyone want to sell me shares and if you sit on the bid you have to wait for someone to come and sell you shares the problem with sitting on the bid is that it requires patience the way I trade when I see a stock moving do you think I sit on the bid and wait for someone to sell me shares no way I'll miss the whole move when I see a stock moving I'm going to buy from one of these sellers on the ask right here who is happily selling shares at 1466 in fact in this example right here why even bother waiting to save an extra penny per share right do the math you save one penny one cent per share on a th000 shares it's 10 bucks all right you're going to save $10 on the other hand you may miss the opportunity to take the trade at all and if you were going to get in at 1465 let's say your stop was 1450 you're risking 150 bucks let's say your profit Target is a squeeze up towards $15 a share you want to make 40 cents that's $400 of profit for $150 of risk who cares about the $10 of slippage between the bid and the ask the difference between the bid and the ask is called the spread and if you get in and you sit on the bid you'll have no slippage but if you buy at the ask it's possible you'll get a little slippage you get filled maybe at 665 like this order went through so it's actually just a little bit above so it's $15 higher than someone who's sitting patiently to buy at the bid but I'm telling you if you want to get in a stock that's moving sitting on the bid you're going to sit and wait and wait and wait so what I look at when I first am getting ready to take a trade level two is not the first thing that I pull up my first order of business and this is as per the strategy that I trade every single day step one is to try to find a stock that's moving so glmd right now is up over 300% this is a stock that I made the most money on in my main account and I'll show you the trades I took in the small account today well it was just one single trade it was not glmd I took a trade before glmd started to make this uh big move which really began kind of at the open but nonetheless each day the first thing I do is I check my scanners to try to find a stock that's moving that's step one if a stock is not moving there's no point in pulling up the level two that is a tool that I use when I'm trying to decide if I'm going to actually execute the trade and that I'm watching Once I'm in the trade to look for an exit indicator but I'm not just going to pull up the level two if a stock is not already moving so step one I find a stock that's moving and I'm going to find that usually on my top gainers scanner right here or on my small cap high of day momentum scanner right here or on my running up Scanner right here these are the three scanners that I'm using the most so step one is to find a stock so in the case of glmd I might click on the stock and think okay it's $15 a share so it's a little more expensive it's not you know I I usually prefer between two and 10 so it's a little more expensive the float is 421,000 shares so it's a very low float stock that's the number of shares available to trade and it's traded 73 million shares today which means it the float has rotated 150 times in other words there's only 421,000 shareholders 421,000 shares out there those the total number of shares so if someone owned every single one of those shares and they wanted to sell today for a 300% profit would they have been able to sell well based on the fact that 73 million shares of volume they would have easily been able to sell in fact 150 times over they would have been able to sell so this is a stock that has a huge amount of volume the relative volume is very high and it meets all of my criteria for stock selection now I'll actually post the link um think or Swim downloads it's going to be posted in uh at the top of the comments and pinned in the description where you can download three things number one my thinker swim layout number two my micro pullback strategy as a PDF that's my favorite way to buy a strong stock and number three my five pillars of stock selection so if you download these three you'll get two PDFs and my layout then you can use the five pillars of stock selection to better understand um the type of stocks I'm going to be trading each day so step one is to find a stock that meets those criteria step two I then do due diligence and I'm checking the fundamental Catalyst I'm looking at the news and I'm starting to pull up the chart once I get to a point where I'm like okay I like this stock and I'm interested in trading it it's only at that point that I pull up the level two and sometimes it'll be at that point i' pull up the level two and I realize oh I'm not going to be able to trade this so what would I see on the level two that would tell me I can't trade this H let me see if I can find an example uh that one's not great uh this one uh let's see vaa how about this now that's going to be a little problem see how it shows 720 on the bid and 838 on the offer how big is that spread it's over a dollar a share that means if I bought this if I bought this right here right now I would be down over a dollar a share that would be a guaranteed loss a big loss so when I pull up the level two on this stock it's actually communicating something very interesting it's telling us that there are not a lot of buyers and there's also not a lot of sellers but the fact that there's just not a lot of volume in total and there's not a lot of orders means that I wouldn't be able to manage my risk number one and number two unfortunately in this particular case it also probably means that there's not a lot of other people that are really interested in this stock I probably have the wrong idea and in fact if I pulled up this level two I would have to go back and question my five criteria for stock selection to ask whether or not this actually met those criteria because based on this level two it doesn't seem that it meets the volume or the liquidity to support a trade on the other hand what about something like this o now see I don't like that either and I don't like that for a different reason which is kind of interesting so we have two extremes on the left we have vea and on the right we have Bank of America and these are my level two windows uh that I use for light speed which is the platform that I use they look a little different than uh The Thinker swim platform back here but but essentially they're communicating the same information the colors are just different I'll walk you through the colors in a moment so the problem with Bank of America is that this is a stock that actually has sold 7.9 billion shares onto the open market the float is humongous and as a result it is very very thickly traded what that means is that the stock is so congested with buyers and sellers that it doesn't really move that quickly it's like a snail it moves so slowly it's impossible for this to go up 10% in one day it'll almost never happen so if it can't go up even 10% in one day it doesn't seem that it would be worth trading the only way to make money on something like that would be to use a tremendous amount of Leverage but using Leverage carries a lot of risk a lot of traders who trade Forex use a lot of Leverage you could do it but it carries a lot of risk what I would rather do is trade something that actually has the potential to go up 50 or 100% or more more like glmd so I'll move these two level two windows down uh these are two examples of uh level two where I would pull it up and I'd be like nope I can't take the trade so let's talk about what we're seeing in terms of data so we've got the bid on the left and and this is showing us the buyers and these are the prices 1465 1462 1462 61 60 60 1391 1386 1381 and the price goes down as we move further away from the current price now I don't know why thinker Swim shows some of these in green and some of them in red because ultimately these are all buyers who have placed orders so they shouldn't be colored that way but in any case that's how they have it now this column right here refers to the number of shares this person is trying to buy at that price 28 shares that doesn't seem like a lot well they abbreviate they abbreviate by taking away two zeros so 28 is 2800 36 is 3600 2 is 200 1 is 100 and so most platforms are like that including the platform that I'm using right here 111 those are all 100 share orders Bank of America 20 you know 1900 700 800 700 200 300 200 2300 Etc so these are all a little abbreviation 100 200 Etc it's the same for every stock so we've got our bid right here these are our buyers these are our sellers so they meet at the middle this is the highest price buyer and this is the lowest price seller but there's also people that are selling at higher prices 67 70 71 80 15 52 15 52 1554 and sometimes you'll see that there's several orders at the same price there may be multiple people all trying to sell at the same price and then 1604 1664 and then a bunch of people at 1689 so let me present this to you what if for instance we have the level two here uh we'll draw a little level two out we have the bid and we've got the ask right here and this is going to be our time and sales so that's going to show us a the quote of every order that goes through the market all right so we're going to separate it like this so we're going to say um and we'll just use same color so we'll say this is 750 and this is a 3,000 share order so it's going to show 30 right just like that and we'll say this um on this side here is uh 765 and this is a 5,000 share order and let's say we go down to 767 7 70 and what if down here at 7 um oops 780 like this we saw a 50,000 share order what if we saw that what would that tell us well based on seeing that right there we can now see into the future we know that there's someone selling 50,000 shares at 780 that's a that could be a fairly large order now for most stocks 50,000 shares is a fairly large order if this stock happened to have 150 million shares of volume maybe 50,000 shares isn't huge but if it's got a million or 2 million shares of volume 50,000 share sell order is big and that means this person right here is going to create a Wall of Resistance while the price may be able to go from 765 to 67 to 70 and eventually maybe there'll be people that sell at 71 2 3 4 5 6 7 8 9 when we come up to 780 we've got a wall and that's going to be resistance now what sometimes we'll also notice is at 78 maybe there'll be another seller maybe there's one for 25,000 shares maybe there's another one here for 30,000 shares and now this only sends a stronger message so imagine you bought this at 765 and you said I'm going to hold this till it goes to 8 but you didn't see this well now you're trading in a way blind you're missing this data because the thing that's really interesting is that when you're looking at your chart you'll be looking at your chart and your chart isn't giving you that signal your chart just looks clean you've done your technical analysis you've got your first candle making new high everything looks great on the chart but the stock doesn't work and why is that and it's because you haven't looked at this one tool closely enough you haven't checked your level two your level two shows big sellers up here and that's what's causing the problem now on the flip side let's say we don't have those sellers we don't have any sellers like that up at up in the 770s 780s whatever it's just you know there's another order at 85 and then there's an order at 98 and then there's you know 810 and 8 25 right so the ORD just keep going up and there's no issue and what if down here at 740 we saw a 100,000 share buyer right we saw a huge buyer down here what if there was another one at 740 for 50,000 shares right so now all of a sudden what does that tell us if you were thinking about shorting it you might want to think again because the Stock's probably not going to drop if you were thinking about buying it at 750 what you would now know is that there is a tremendous amount of support right underneath your entry only 10 cents below your entry now what gets kind of interesting here is that in a sense you could almost take this trade here where you'd say I'm going to buy at 750 and I'm going to set my stop at 739 as long as these buyers stay here I'm going to stay in if they're staying in I'm staying in now your chart when you pulled up your actual Candlestick chart let's just say for instance you pull up your chart and let's say it looks something like this you've got a green candle here a green candle here another green candle you've got a little red dogee small red body candle another little red dogee and then this is the green candle right here and let's say let's just say for the sake of argument that right down here what's the low of that pullback that would of course be our stop let's just say that's 740 well isn't that interesting right at 740 there's a huge buyer on the bid creating support now it could be that that right there is 750 and your huge buyer is just a couple cents lower at 740 and that would be interesting as well or what if it's a little different what if the low down here is 735 but all of a sudden this big buyer came in right here at 740 maybe what we would say is I'm going to go ahead and get in at 750 50 which was the first candle to make a new high that was my entry anyways but I'm not going to hold till 7:35 the low of the pullback I'm just going to use this big buyer on the level two to help establish that that is my stop point and so this creates almost a second level of risk management that by better understanding the depth of the market you can see where there are big buyers that you could choose to sell to if you decide you don't want to keep holding and where there are big sellers who might cause an issue if you're hoping that this stock is going to make a quick move up right now here's something that's really interesting when we're looking at a stock in real time let's say you want to buy shares you have the two options the option number one is that you sit here at 750 and you just wait for someone to come and sell you shares or maybe what you could do if you want to get a little fancy is you could put your order let's see what was the spread 750 by 765 you've got a 15 cent spread here you could put your order at 755 to buy a th000 shares right you could cut the spread you could go up a little bit and maybe someone will come and sell you shares and you'll get filled but that doesn't always happen and so if it doesn't happen then you end up just sort of sitting there your order just sits there and you wait but if you do the way I do and you say you know what I want to get in this I'm going to buy a th000 shares right now and I'm going to get in at 765 I'm buying from this person right here your order will go through What's called the time time in sales the time and sales reports every single order that is placed on a stock and that order will be one of three colors it'll be green if the transaction is initiated through a buyer if a buyer presses the buy button and buys shares from a seller it's a buy order that goes through in green remember whenever there's a transaction well you just bought a th this person had 5,000 shares now they've got 4,000 left because you just bought a thousand of them now maybe someone else says oo I see someone else bought 1,000 shares I'm going to buy 1,000 shares too at 765 and now it goes to three and then you say someone else says I want to buy a th shares and then it goes to two right then it goes down to two and then someone else says you know what I'm going to buy 2,000 shares and actually to be correct the newest order would be at the top of the tape but we'll just do it like this just because it's easy so then 2,000 shares and then all of a sudden that order is gone and now the price moves up boom to 67 right now if someone buys those orders those shares it goes up to 70 someone buys those they go up to se to to 80 and of course this all moves up so you're seeing the very top is now 85 so 85 moves up and now maybe you can see a little bit further down to 835 845 850 Etc so let me show you an example of what this looks like oh and one other thing that I didn't mention although it's not as important is the exchange that the order is going through on so what you you can see right here ex this is the exchange bats H NASDAQ ARCA edx OTC that's the exchange that the order is being routed on so that's not super helpful information to be honest but it's it's there and so it's it's just included all right now let me show you an example here of uh level two and some price action and you can actually watch these sellers um that get bought up so to get you oriented here this is my light speed trading platform which is a little bit different from um from thinker swim oops let me just resume this pause it thinker swim uh what I like about the level two on uh light speed is that you can change the colors of it so you see how green there's only one row in green now there's two back to one back to two two rows in green one row in green two rows the reason it's changing is because green is the number of orders that are the best so if we go to Bank of America we've got you know 2 4 68 nine or whatever orders that are all sitting at that best price you go to another stock it's a bunch of orders that are all at that best price Siri is what I meant bunch of orders all at the same price okay uh so I like having it colored that way because it's easier for me to see how many buyers are at one tier see right there you've got a 13,000 share buyer at 23 now what's also interesting about that is it's very common to see big buyers near areas of psychological support such as half dollars and whole dollars that's very common so in the case of thinker swim thinker swim doesn't let you color this so it's a gradient you see how it's sort of a gradient it's just 65 62 61 it just goes from sort of lighter blue to darker blue it's just a gradient so the problem is this area right here where you've got four orders stacked at the same price or this area here you've got two orders at the same price it's easy to miss that but I think it's important when I see that there's multiple orders at the same price I get curious about why why is there this clear support or resistance at that price so with light speed you can actually go in you can color your tiers so you can see clearly what's there now we're going to get oriented here we're looking at this stock right down here the symbol ticker is Mark and this is a recording from a while ago but it's a great example on the ask how many shares do we see 15,000 and how many are there 1 2 3 4 5 six maybe seven all right so I'm going to press play and now what you're seeing here is this is the time in sales showing all of the orders that are going through and a lot of them are in green and as people are buying the seller gets smaller so 15 12 5 and then it goes up to 46 246 and now it's 247 and there's a 13,000 share seller 13 and then it goes to 7 6 5 4 3 2 1 now just 700 shares left and it goes to 48 and now it goes to 49 and at 49 there was a seller got bought up now we're going up to 50 right here we have actually over 90 over 100,000 shares on the ask we've got 52,000 shares at 50 right there we've got another 41,000 another 13,000 so those are a lot of sellers sitting on the ask and they're getting bought up look at how fast that got bought up it goes to 50 now it goes up to 55 and on that trade I took a quick profit it goes up to 56 57 and you can see how the buyers are getting bought up and then of course I had that little flush and there was a burst of red on the tape it dips down and then it bounces back up it comes back up to 54 55 there's a seller at 55 see 20,000 shares 22 on the ask the biggest seller is at the top and then 15,000 is the next biggest then 5,000 is the one below that so when I look at a stock like this I would tell you that this looks pretty thickly traded you've got some big sellers out on it you know it's up 40% on the day but gosh it it's it's obviously thickly traded it's not you know it's these big sellers are causing a bit of an issue if you didn't have all those sellers think about where this would have been probably at 275 or higher so there it is 19,000 on the ask and then it's 18 and then 16 15 and then all of a sudden 13 boom it goes to 57 58 now 59 Now 60 and this is where you're getting that surge of momentum up to 61 162 this is that burst of volume coming in so if we go back there you'll see that I actually took a trade right in that area so what was I doing was I looking at the chart or was I looking at the level two now of course I first had to do my due diligence and decide that this is a stock that met my five criteria for being worth trading so make sure you download The Thinker swim special downloads for the small count challenge so you can learn about my five criteria for stock selection and then I pull up the chart and then at that point my eye is really focused right in here this is what I'm looking at and I'm looking at that big seller and I'm glancing at the bid and I'm noticing there's only a 1-cent spread so we've got a very tight spread between the bid and the offer and I'm thinking that if this thing breaks 55 it might go so I end up putting my mouse on the buy button right here my order is actually a limit order of 259 that means the most I would pay is259 so if it popped up very quickly I could get filled at 259 but I wouldn't get filled higher than that the order is for 2,000 shares it's not a huge order and right looks like I'm about to click it right there I click it 58 and now it goes 60 and I'm expecting because I'm seeing this surge of buying that we're going to pop up a couple cents a share so there's 62 63 and just like that it's a small winner now maybe that's only a $60 winner but you do that with 5,000 shares it starts to add up and of course the more you trade the more of those winners you can add up one of the things that's really nice about the strategy that I trade is that I see dozens of opportunities every single day so usually I stop trading not because I run out of opportunities but because I'm happy with how much money I've made now in this thinker swim small account challenge I can only take one trade per day before I run out of cash so that is my biggest limitation is running out of buying power and I did run out of buying power today all right now let's look at another example of a live trading archive here so um this one's kind of interesting so on this one here there's a hidden seller at uh 29 uh $10.29 so this stock here is halted it's been halted on circuit breaker it got halted because the stock squeezed up more than 10% in less than 5 minutes that can cause a stock halt so the stock is halted and showing a resumption right now of 1029 as we can see right here so we're watching the resumption on this and as it resumes it resumes and I see buyers coming in right there I see those buyers coming in and I'm thinking all right if we break 1029 we're going to continue the squeeze we halted up now we're resuming I'm looking for continuation we dip down just for a second we come back up I add for the break at 29 right there at 29 I'm in and now I'm realizing 29 H it's getting a little stubborn there see how it keeps hitting 29 to the penny gosh darn it this thing 29 you son of a gun it does not want to break 29 isn't that funny 29 has become resistance you can see it right here on the level two can you see it on the chart sort of it's a double top you can't see it as well on the chart it's funny because the chart communicates a lot but there's some things that it kind of misses and you can't quite see that on the chart but you can see it on the level two so now it pulls back down again to 10 and we're going to dip down and what I'm going to end up doing is I'm going to end up buying the dip and I'm going to add for the break of 29 and I want you to watch what happens when we break 29 I would say 29 uh right now is a level of resistance and what typically happens when resistance breaks well usually we see a pretty big move so right now we're dipping down I'm still holding Stock's up 57% on the day it meets my criteria for being the right type of stock to trade and watch as it squeezes back up here I add down there at $10 now watch this we come up to 1019 oh my goodness you see how much I'm up right now I'm up 9,000 $316.5 like that how was I able to predict that that was going to happen now of course I didn't know with 100% certainty there was always the risk that it could have kept going down I would have had to take my Max loss but I could tell that there was a little wall at 1029 and I knew that once it broke we would probably see a big squeeze cuz that's the pattern that I've become familiar with once they break you get that big push if I wait for it to break I'll miss it so I have to get in a little early I'm in a little early and now all of a sudden in seconds I'm up over $10,000 what a phenomenal trade let's back that up one more time so you could see it again so I add at 10 it comes back up here it breaks 1019 watch I'm going to pause it really quickly 1025 and immediately in an instant it goes straight to 107 1079 by 1095 it goes up to 11 over $11 a share I take half off the table I pay myself $4,500 I take a little more off the table incredible I mean it just doesn't get a lot cleaner than that that was a beautiful trade now let me show you another one this is an example of a big seller all right so I'm going to put this one on the screen share for you to see so here we've got it looks like a seller perhaps holding up the party all right so so on this stock right here sfun there we go so sfun we're looking at this stock right here and this is the chart the stock has squeezed from 515 up to 550 it's pulling back right now we're looking for a possible break through 550 a break over the half dollar so as we're watching it here we're looking for this to squeeze through 550 so let's see what ends up happening watch as we come up to 550 right there at 549 do you see that seller 53,000 shares that's a wall there's a huge wall there now for some reason I don't know why this is sorted not with the biggest order on the top but anyways that big seller is a problem that's a wall until that seller breaks there's no trade and what makes it worse is that look at 57 there's another seller right there of 16,000 or 11,000 shares so you've got two sellers causing an issue so we don't like to see that here's another example I'll show you so every single day while I'm trading I'm looking at the level two and the level two is helping me interpret whether or not I think the stock has a potential to make a big move and go higher or if it's going to stall out so what do we have here oh it's on this stock sorry so on this stock here let's see right there at 1180 we've got 25,000 share seller so we've got a big seller right there and it's you know it's 50 cents away but but it's a big seller especially on a stock that has light volume it's not going to be worth trading it that's no good that's a problem so here's one more example I'll show you and then we'll switch gears so avgr another big seller oh yeah there you go you could see that so this stock is currently up 51% let's see oh there it goes uh so it's up 51% here and we've come into the open it's 9:00 a.m. and all of a sudden we come up to $2 and there's a 51,000 60,000 share seller at two so already someone is selling shares 40,000 44 on the ask right so when you see that big sale order it's like you know what this thing's not going anywhere so I don't buy when I see a big sell order blocking the way like that that's the edge that the tape gives you when you see the orders you see these huge orders sitting on the offer sitting on the bid all of a sudden you can infer what's happening here right if you pull up the stock and there's that big order it's like okay there's support there's someone buying right here you pull up there's a huge seller we've got resistance right here so now I have another tool that I can use every single day while I'm trading yes stock selection is important none of level two matters if you're choosing and trading the wrong stocks if you're trading the wrong stocks you're going to pull up Bank of America you're going to trade stocks that aren't moving you're going to get frustrated that's not going to work so level two is not the first thing that I look at first I have to do my checks of is this the right type of stock to trade what's the Catalyst what's the chart setup look like but if I've done all of that then I'm pulling up the level two and that's what I'm trying to make the decision of will I actually take this trade is this a setup that I'm going to be able to buy so like this right here for instance we've got this pattern where this is a stock that has now done a number of jack knife breakouts false breakouts here it Hal down here it did another one right here so in this area here unfortunately it just has too much risk of doing that again so if I pulled up the level two on it I might not see anything on the level two but you know what I see right now just to pause for one second what I see right now on this is a 26 Cent spread a 26 Cent spread that's kind of a big spread you know I don't really love seeing that I'd rather not see a 26 Cent spread so you've got a bigger spread you've got you know a stock that's jumping up and down really quickly and unfortunately this is a stock that it would be very difficult to manage risk on it's just moving too fast look at how fast it goes to 1475 so at this current price you know that you look at the chart and sometimes you can't quite grasp the scale of how much it's going up and down when you look at the level two and you see this whip you realize now I wouldn't be able to manage my risk on that so it doesn't matter how much that stock goes up if I can't manage my risk it's not worth looking at it any longer I might as well look at something else I might as well move on if I can't manage my risk there is no trade if you're trading thinking just about profit potential you're gambling now the best Traders out there the ones who are really active they're absolutely using level two I know of very very few traders who try to day trade without using level to I think it would be the equivalent of trying to drive with one eye closed could you do it sure but you're going to consume less information less data and it's going to put you at an inherent disadvantage not to mention depth perception but I'm sure there's people that do it and you could do it could you trade with out level two sure but why why would you do that why would you take away all of the data that's available here well I'll give you a couple of U things that people have said some people have said you know Ross I don't like using level two because I get faked out they get faked out what does it mean to get faked out well maybe they'll see that big seller but then it ends up working anyways and I say well okay so you got faked out on that particular trade I get faked out on some trades as well but in net in total we look at my metrics and I know what I'm doing is working quite well and I believe that level two is giving me that edge it's helping me know when to get out of a stock when to get out of the way when to get in when something's going to go higher some people say well Ross isn't it is it true that someone could put out a fake order we've heard about hedge funds that do that they put out huge sell ERS to try to scare people away or they put out huge buy orders to try to convince people to buy and while it's true we have heard about that that's called order spoofing and it's illegal so retail Traders if we did that with a retail broker the retail broker would see it they would kick us off the platform we'd be gone and we would probably get blacklisted and we wouldn't be able to open an account with any other broker do the institutional Traders do it I'm sure they do I'm sure some of them do but what types of stocks are they trading typically Tesla Nvidia the S&P 500 large caps maybe GameStop maybe AMD okay so if we know our lane if we trade the right type of stocks the stocks that be my five criteria of stock selection those aren't the type of stocks where we're going to be fighting as much against institutional Traders and the reason is there's not enough money and profit potential poal for them to trade it so let's think of an Institutional Trader right now that's managing a $100 million account they've got a $100 million account and this stock glmd has a 400,000 share float and it began trading today had a low of $5 a share which means the total market cap of the stock this morning was like $2.5 million $2.5 million they would they they have to buy the entire company you know what happens if you buy the entire company you've got to do regulatory filings you're a majority owner you can't just buy 100% of the company and then turn around and sell it you know half an hour later that like that doesn't typically you wouldn't be able to do that anyways now this has enough volume where I suppose you could have but nonetheless institutional Traders are not typically going to be interested in these types of stocks they're just there's not enough money for them they want to trade the things they can move $40 million in and out of and make really big money so I think the good news there is that we trade and we liberally speaking we as retail traders who are profitable and who are smarter are trading generally small cap stocks that are moving because they've got a catalyst but these are small cap stocks that are not dominated by high frequency trading algorithms they're not dominated by institutional Traders so we do have an edge now if you try to trade meta you know you try to trade Tesla you look at the level two on these stocks and that's actually a different game now what I'm going to do here I'm going to show you something real quick this will be kind of interesting um let's see WM so I'm going to show you this feed of Market data and this feed is kind of interesting this is actually going to show you it's going to take a second to load this is going to show you um high frequency trading algorithms right here and the way they move their orders in and out of the market so you might be able to see this it's a little hard to read but these are actual orders that are getting placed and cancelled in real time by High Frequency trading algorithms so this is actually the visual of what level two looks like when you actually plot it on a chart which most people wouldn't do but but if you did this is a high frequency trading algorithm these algorithms what they're doing is they're placing orders and they're canceling them and they're placing them and they're canceling them in fact right here these are live orders that are going on the book and you can see how they're how dynamic they are they appear and then they disappear they move up they move down it's like flickering and this is these are actual computer programs that are moving the price they're moving the price up they're moving the price down they're responding to orders that are coming through the market and these are incredibly sophisticated computer algorithms that are designed to make money who are they making money for the institutions they're making money for the market makers they make the market by actually sitting on both the bid and the offer at the same time so when we come back to our level two example where we've got our bid and we've got our ask right here a market maker will sit here to buy they'll post an order to buy 10,000 shares and then they'll post an order to sell 10,000 shares how do they do that how can they buy and sell at the same time market makers are allowed to do that they can be on both sides of the of the book and they have to be so they buy and they sell the way this works is you come along and you say oh I I can't wait to sell this stock oh this person wants to buy I'll sell to them so you sell them $10,000 000 shares so now they own 10,000 shares but they're also sitting right here so then someone comes along and says oh I want to buy 10,000 shares so then they buy them so they C they cancel out each other's orders basically when someone buys they sell when someone sells they buy and so how do they make money they make money through the spread right here so rather than having a 1-cent spread a market maker would prefer to have a 5-cent spread or a 10-cent spread so it would be you know 200 um by let's say 225 $225 $225 so a 25 cent spread there so now on a 10,000 share order they're making $2,500 across the spread they do that 10 times in a day and they're up 25 Grand right and that's the idea of a market maker they buy and sell they buy and sell when and and they create liquidity because anytime someone wants to get in they are right there ready to sell and any time someone wants to get out they are right there ready to buy and so they Arbitrage they just profit from the short period of time between you buying and someone else coming along and selling and so on and so forth but they utilize these incredibly sophisticated algorithms to make the market so they adjust their prices of their orders based on Market data so if they see a flow of buyers come in you know what they're going to do with that sell order that sell order for 10,000 shares what they could do is they could cancel it real quick and change it to 2,000 shares in an instant they can do that the second they see that big buy order come through on the time and sales they can cancel their order before you even execute to buy their shares and they move their order up three cents maybe you buy a few cents higher and some people criticize this because it's almost like they're able to jump in front of orders and then take money out of your pocket because you you place the order and now they're saying oh I'll give you shares but since I know you want them I'm going to make you pay a little more but uh Regulators have said that they don't have a fiduciary obligation to you because you're just another Trader so they're allowed to take money out of your pocket so when we see this type of price action this is what large caps look like this is what indices look like now you switch to something like um glmd we'll switch back to that one so glmd this one's going to be very different this one has some splotches of orders down there where an order is placed and canell but for the most part you could tell it's very different it's mostly big order that sits there there's a order right now that's sitting up here at um 1750 for 16,000 shares another one at 17 and then there's a couple of big buy orders down here at 20 and and 1150 and 1120 or sorry 11 both for 20,000 shares so you could see these big buy orders but just the way they're placed is is different it's much more organic um let's see what's another stock that's up a bit today smsi this one's pulling back a little bit and it's also a penny stock but we can look at this one so lower price stock here doesn't really have too many orders there's not a lot of people trading it there's 100,000 share sell order here so actually what you have are sell orders so this is interesting you have sell orders lined up so if we looked at the level two we would see sell orders 100,000 shares sell order 86 cents another 50,000 shares at 90 cents another 50,000 shares up here so you just have sellers stacked up but that's that's not algorithmic that's just people that are selling they just want to get out of the stock dtss this is another one that was on our scans earlier uh didn't really move a whole lot probably doesn't have too much going on right now but you know you compare so a lot of sellers up there yeah so this is again you see the depth of the market you pull up your level two and you see oh look there's a lot of sellers at 350 and 360 we're going to have to break through those levels before we're in good shape for the move up to four so now let me show you my trade from today so I'm going to move this out of the way so today was day four of my small account challenge here with thinker swim and if I pull up my let's see my platform you see the one trade I took was on allr so I made $277 today I bought 2500 shares and I sold 2500 shares so one entry one exit made about 12 cents a share 11 yeah 11 cents a share not bad that's a decent little winner um it's it's actually a smaller Green Day relative to my other green days I've had so far so if we look at the challenge um this is day four day 1 was 398 Day 2 was 526 day three was is 518 day four here $277 okay metrics so far on the challenge I've got 8% accuracy which is good average winners 468 average loser 154 only one loser so four winners one loser um and $1,700 a total profit goal is to grow the account to 25,000 so on ALR this one popped up a little bit earlier at the time GM uh glmd was in play so I wasn't interested in glmd but all of a sudden allr pops up right here it squeezes up and so the first thing I did it pops up and I said I know this stock it's a 1.2 million share float I was already watching it because it was already up quite a lot on the day in fact if we look at it from uh the previous day this stock met our stock criteria just based on the fact that it was at 350 and was up now at 450 so 30% on the day nice percentage change low float and so as it pops up I said I have to buy the first pullback that's my micro pullback setup which you guys can download it's pin on the top of the comments so I got in right here right there at just over uh 450 just over 450 455 so we squeeze up I let it pull back and I press the buy button right there it squeezes up here to 460 465 470 480 it tops up there at 480 which is almost my 25 C move from the entry not bad it dips down here then it pushes higher up to 490 comes up just under five can't quite break five and it pulls back I end up locking up 11 cents per share average total profit for $277 now what gave me the conviction to take this trade first I pull up the chart and I see this setup forming right here then I pull up the level two and when I pull up the level two I'm looking for buyers and when I see other orders going through green on the tape that's when I'm thinking to myself all right this stock is moving other Traders are jumping in right now that's exactly what I want to see that tells me other people like the stock and that indicates momentum now if I pulled up the level two and all I saw were sellers or I saw a huge sell order on the ask would I've taken the trade absolutely not level two is that final step you've got to do step one to find the stock to trade step step two is looking at your chart step three pull up level two and execute the trade if the level two doesn't check out you don't take the trade if there's a big seller there if there's a lot of sell orders going through on the tape a lot of red orders there's no entry there's no setup I well it's not that there's no setup there might be a technical setup but the trade is invalidated based on the the the level two based on the depth of the market so in that case I wouldn't take the trade but in this case it pops up and although it dips for a second immediately another round round of buyers came in and it starts surging higher so the second it starts squeezing higher as soon as I see that green on the tape boom I'm jumping in that's what I'm looking for so my eye is looking at the ask right here and I'm looking at this right here for green so glmd is of course moving more actively now this is up 350% so right now you're seeing white those are orders going through the spread you're seeing and red a little small burst of green but this is not convincingly green right here now and there's a 14,000 share seller 13 12 on the ask 11 9 8 eight eight so it's starting to get bought up seven six and it breaks and it pops up 10 cents a share now if this was also lining up with a technical entry there might have been a trade right there right now I don't take a trade based just on level two and I don't take a trade based just on the chart it has to be a combination of both right the level two supports the chart pattern the chart pattern supports the level two so in a in a sense it's kind of like uh when we talk about multi-time Frame Alignment where we like to see the one minute and the 5 minute are both giving a positive signal it's sort of similar here with this where we want to see that technical setup but we also need to see that the level two supports it so right here you're coming up to um 1830 and as we come up to 1830 you can see that red order that says lld which is Limit Up limit down what that means is that this is the circuit breaker price the price cannot go higher than this within a 5 minute period it cannot go up more than 10% in 5 minutes so it's pinned at that price it can't go higher now what could happen is the price moves up and it did it just moved up to 1861 and just in an instant look at how much that dropped all the way down to 1760 right so this is where things can get a little crazy when you're trading something that's volatile and something that I've learned gosh so that was that candle right there that drop that we just saw something that I've learned is that uh and there's this expression there's a couple more false breakout candles uh here and here there's an expression that nobody asks where a taxi goes after they get out but when you get out of a stock you can't stop thinking about where it went so as this stock goes higher and higher I traded it earlier made some money on it and it's gone higher and I'm thinking oh gosh I could have should have would have held it gotten back in da da but then you look at this and you see well but what if I'd gotten in right there boom instant loss what if I'd taken that trade instant loss what if I taken that trade instant loss I try to remind myself that once a stock has proven itself untrustworthy through either the technical price action here or through the price action that you're seeing on the level two then unfortunately at that point you simply can't take any any more trades on it because you're asking for trouble this right now is halted up so it's going to be halted for a period of 5 minutes it's showing 1882 halt time halt price now it's showing an $18 resumption 18835 so this could resume at 17 it could resume at 19 we don't know unfortunately with a stock that's this volatile you're subjecting yourself to um to a lot of risk and this is at the end of the day the goal of a Trader minimize your risk try to make profit while minimizing risk so glmd today for me in the small account challenge unfortunately it was too expensive even from the beginning of the day so when I took my first trade on allr um glmd at that time was was not in place so glm that trade on ALR was pre-market and at that time glmd was pulling back as you could see right here uh but I did take a trade on glmd uh actually right here as it curled up premarket and then um there was another trade I took on it in this area which was nice but the thing about it was uh I was in my main account where of course I have more buying power in my small account I was like realistically how many shares can I afford and I just thought to myself I'm better off focusing on stocks that are you know $2 $3 $4 a share than trying to trade something that's 789 and then once it got higher up I just said no there's just too much risk sometimes you look at a chart like this and in hindsight you're like wow look how clean that is although to be honest even when I look at this doesn't look that clean when you you see these candles here you see whoa I could have really screwed up pretty badly cuz these candles are huge but anyway sometimes you'll get a chart or you set you switch it to a 15minute time frame or something like that and you're like wow this thing just basically went straight up I can't believe I you know didn't hold it longer this and that but again I'd encourage you to focus your Str strategy on quick entries get in get green get out don't overstay your welcome and remember to pay yourself once you start getting the feel of level two and the best way to get a feel for it is to practice a lot you want to practice trading in a simulator uh you just get in get out get a ton of experience you could be trading some of these stocks all day long in a simulator gaining experience but once you start to see some of these patterns you see that big seller and then you watch to see it get bought up it goes from 20,000 shares to 19 18 17 16 15 14 13 and all of a sudden you're like whoa here we go this is it and there it goes and now it's it's like things are really connecting and that's when it gets so exciting so I I really hope that this in-depth guide has been helpful for you if it has I hope you hit that thumbs up I hope you are subscribed to the channel for more episodes about training strategy just like this and so you can stay tuned to see how I progress with this small account challenge with thinker swim today's day four accounts up $277 I'm making profit still a ways away from 25,000 but that's the goal I can't wait to get there but I have to focus on a quality setups and using every tool that I have to reduce my likelihood for R for of risk and loss and increase my odds of success so again thank you guys for tuning in I hope you download the small account challenge uh collection that I have you've got the micro pullback PDF the stock selection uh PDF and my thinker swim layout so check those out and I'll see you for the next episode here real soon I'll remind you as always that trading is risky my results aren't typical so manage your risk take it slow I'll see you back here for the next upload real soon