Four tactics to trade with Level 2 data

A string of stellar earnings reports has propelled U.S. stocks to significant gains in recent weeks. A chilled April CPI, and steady retail sales have steered a wave of optimism toward potential rate cuts, propelling U.S. three major indexes to new record highs on May 15, 2024.

All eyes are on Nvidia, as it released its Q1 earnings on May 22. High trading volume suggested a tug-of-war between buyers and sellers, revealing potential trading opportunities.

Afraid of missing out on trade data? Access precise, real-time Level 2 market data to help identify potential trading opportunities with Nasdaq TotalView.

Imagine you want to buy Nvidia shares before the market opens, with the premarket price at $912.1. Setting a buy order at $912.1, the current best bid, might not fill your order quickly.

However, by using Level 2 data, you can see the detailed bid and ask prices and order sizes. You notice that the sell orders at the best ask price of $912.2 are small.

To fill your order more quickly, you can set your buy price at $912.3 or more. This strategy demonstrates how Level 2 data can enhance your trading efficiency.

Large buy orders at a specific price level can indicate short-term support, suggesting a potential rebound and buying opportunity if the price stays above this level. Conversely, large sell orders may signal resistance.

However, if the price does not significantly rise despite many buy orders, it could indicate potential resistance instead.

This complexity underscores the importance of considering various factors in trading decisions, such as market sentiment, stock-specific sentiment, recent momentum, and technical indicators. Moomoo Learn offers premium courses on using these indicators and patterns to help you make informed trading decisions.

Beneath the best bid and ask, you'll find the depth chart. This chart updates in real-time and helps you quickly determine the balance between buyers and sellers, making short-term support and resistance zones more apparent.

The Trade Overview pie chart further breaks down the order sizes, visually representing buying (inflow) and selling (outflow) strengths.

Combining this information, it appears that the buy and sell sides of NVDA are still in a tug-of-war, with no clear winner. As a result, the stock price may continue to fluctuate.

The market's ebb and flow reveal valuable insights into emerging trends, especially through unusual order activity. Such orders reflect trader sentiment, which drives stock trends.

A noticeable increase in the buy order queue or block buy orders can indicate rising buying interest and a potential increase in stock value. Conversely, a sudden surge in sell orders may signal growing selling pressure and a possible price dip.

Additionally, monitoring the bid-ask spread can be enlightening. Shifts in this area often signal changes in price direction, offering traders clues about potential trend reversals or continuations.

Level 2 data is a useful tool for traders, but it has its limitations. Orders can be canceled quickly, making the landscape ever-changing. To maximize its effectiveness, it is helpful to combine Level 2 insights with fundamental analysis and other technical indicators.