There are some traders who swear by it religiously and cannot trade without them.

And there are also traders who think level 2 is full of fluff, and therefore they never use it.

I'm not here to tell you whether you should or should not be using level 2 and a tape as part of your trading.

But what I will do today is break down what level 2 and time and sales are, how to read it, and what exactly you should be looking for in there.

After watching this video, you'll be able to decide for yourself whether you should be incorporating reading level 2 and a tape into your own trading style.

This was a highly requested video by you guys, my loyal followers here on YouTube.

So a lot of time, recording and research went into this.

If you wouldn't mind, I'd really appreciate it if you could drop a like on the video.

Thank you so much my friends.

Ok so let's start with the basics first.

This is a recording of my execution platform DAS trader.

A recording of the stock UAVS.

Over here is the stock chart, intraday chart for one minute.

This is the window where you see all the colorful blocks.

This is the montage window, also known as level 2.

And on the right side where you see the numbers, the white, the green, the red.

This is time and sales, also known as the tape.

So let's start with level 2 first.

Level 2, over here, the left column is basically the buyers.

The pending orders waiting to buy or cover the stock at a particular price.

The right hand column, these are the asks or offers.

So these are orders waiting to get filled to either sell the stock or short sell the stock.

So basically just remember left hand side are the bids, the buyers, the asks, or the offers of the sellers.

Let's start with the letters.

These are abbreviations for the exchanges.

So you have MX, BATS, ARCA.

These are different exchange routes that the orders are coming from.

And the price, you can see $3.91, $3.90, $3.89.

So these are the orders waiting to get filled to buy the stock.

So these are the buyers waiting to buy the stock at $3.91.

And $3.91 $3.90, $3.89, $3.88.

And the same for the asks.

These are the orders pending to sell the stock at $3.93, $3.94, $3.95.

And these numbers, the single digit numbers, these are the size of those orders.

So they are in hundreds.

So the 4 stands for this buyer wants to buy 400 shares. 2, 200, 0 is an odd lot.

So that would be an order size less than 100.

And 102, this is a pretty big order right?

102, so that means the seller is trying to buy 10,000 shares.

Wait did I do the math right?

If you add 2, 0, yeah I did.

Not all the shares are bid at ACB.

And the same for the sellers. 26, so that's a sell order for 2,600 shares.

They are all in this order.

And as for the colors, you see these really pretty colors, the yellow, the green, the blue.

They don't have any meanings.

But they are actually really useful when you want to see if the buyers or sellers are stacked.

And it helps a lot to group them together when you are trying to read it on the fly, really fast, in real time.

And we'll talk more about that later on.

So don't worry.

If let's say I'm trading right now.

If I place an order, if I want to buy the stock at $3.89, let's say I want to buy 1000 shares.

If I click the buy button right now, this is recording so I can't buy.

If I click this right now, my order is going to show up with the ARCA exchange.

You'll see me showing up on level 2, pending order, $3.89.

If I want to buy 1000 shares, you'll see 10 over here.

And the same if I'm trying to sell.

If I want to sell 1000 shares at ARCA, then you'll see my number added up to this ARCA exchange right here.

Keep in mind, all the orders on level 2 are pending orders that haven't been filled yet.

Pending orders to either buy or sell.

And if my orders are pending, once they get filled, you'll see them on the tape, the time and sales.

So these are the actual transactions that has been filled and gone through in real time.

Ok so let's talk about time and sales or the tape right now.

So these are like we talked about, once an order gets executed on level 2, then they show up on the tape.

So you see $3.88, that means the order got filled on the bid side.

And you see quantity, these are the actual number of shares that's being traded.

So you can see at this exchange, they traded, somebody do the math really quick, 1015 shares on the bid side.

And the greens are basically the orders that got filled on the asks.

So somebody bought and sold on the ask $3.89 for 200 shares on ARCA.

So these are the orders that's been filled.

So you have the price, the quantity which is the actual share size, and the exchange.

You also have the option of adding in the time, to see what time the orders got executed at.

But for me, I had that hidden because I don't want to see too much information.

This is all I need, the price, the quantity, and the exchange.

And for me when I'm trading, I care more about the tape rather than level 2.

Because I want to see the actual orders being filled.

And whether they are being filled on the bid side or the ask.

Because these are the actual transactions that's gone through in real time.

The stuff you see, all the numbers and orders from different routes on level 2 that you see, they are just pending orders waiting to get filled.

A lot of times, especially when you're trading large caps, you see a lot of algos and HFT high frequency trading on level 2.

So that doesn't really help.

Anyone can cancel their order that's on level 2 and pull their order anytime.

And that's why you see a lot of orders come in and disappear really fast.

Whether they are real or whether they are just there to spoof the sellers or buyers, we don't know.

And on top of that, it's very easy to hide your size on level 2.

So maybe I'm trying to sell 10,000 shares, but I can have the order pending on level 2 just as 100 shares.

So that's why you see a lot of fake numbers on level 2, and white people say there's a lot of fluff on level 2.

And we'll talk more about that later on.

So I also want to talk about adding and removing liquidity.

So if I'm trying to buy the stock UAVS, there's two ways for me to get filled.

I can either sit on the bid on the left hand side and wait to get filled at $389 or $388 and under.

And that's called adding to liquidity.

Because I have to wait for somebody to hit my shares.

Or the other way is I can hit the ask and get filled right away at $390.

And that's called removing liquidity.

Because I'm trying to get filled right away.

I'm removing the shares available in the market.

And generally speaking when you are removing liquidity, it's more expensive and there's more fees.

Unless you're using one of those flat rate brokers like Fidelity or thinkorswim used to be like that.

But when you add in to liquidity, you get certain rebates or you get discounted commissions or something like that.

Every broker is going to be different, but for the brokers I trade with, it's cheaper for me to add to liquidity.

But a lot of times, I'd say you're trading breakouts right away.

A lot of people will hit the ask, because if you sit on the bid, you won't get filled.

Because breakouts happen so fast, if you want to get in right away, you have to hit the ask.

And vice versa, let's say a penny stock just announced an offering, and I'm trying to get filled on the short side.

And that's where you hear short sellers saying they are hitting the bid or smashing the bid because they need to get filled right away.

They are removing liquidity, it's more expensive, but a lot of times it's worth it to do so.

So a lot of people are asking, what exactly is the secret to understanding what's going on in the level 2?

I feel like I'm always staring at these numbers like I'm in the matrix.

How do I wake up like neil in the matrix?

So the secret to mastering reading level 2 and time and sales, is just to keep reading it.

That's it.

Ok just kidding, I'm back.

You know I won't leave you hanging like that.

Yes I can discuss what to look for in level 2 and time and sales.

But it's true, the only way to get good at reading L2 and the tape and piecing together all the information really fast when you're trading, is to hit the like button and actually just practice reading and staring at the tape.

And that's the reality, there's no shortcut here.

Again, it's all about the screen time you're putting in to the market.

So these are just a few things you want to look for when you're trying to read level 2 and the tape when you're trading.

Again, it's important to have them placed beside your charts as a confirmation.

So the color blocks that we talked about earlier, helps you identify whether the buyers and sellers are stacked.

What does that mean?

So that means especially at the $4 resistance area, you want to see, so right now we have buyers stacked at $4, you see a huge block of yellow, and they are bidding at $4, and if you really want to see if $4 can support, you want to see big orders stacked at $4.

So right now we have like 2,000 shares, 1,000 shares at $4, you want to see if it starts to hold.

And you want to see if we actually break above $4 really clean and start to hold above it.

Because if the sellers start to come in around $4.05, you can see $4.05, there's sellers are stacked at $4.05.

And these are pretty big orders, 9,000 shares, 9,000 shares, 2,000 shares, this is probably not going to hold the $4.05 area.

And again, these are just the pending orders, they can be here stacked just to spoof the buyers or trying to drive the price down.

Or these can be actual orders trying to get filled, people trying to take profit on a stock down.

And also noteworthy that at $4, the bid is at $4.03, but you see $4 here, there's a pretty big order, 50,000 shares.

So it could mean they are trying to support the $4 level.

Again this is a pending order, so they can be trying to prop the stock up around $4.

Whether we hold or not, we don't know until we actually go through on the tape.

So that's why you want to have the level 2 and the tape placed side by side, otherwise strictly reading the level 2 doesn't really help that much, in my opinion of course.

And that's why I really hate using the level 2 on thinkorswim, because there's no color blocks.

It's very hard for me to identify whether we're stacked on the buyer side or the seller side without these color blocks.

This is why DAS trader platform, if you want to take trading seriously, this is the execution platform to go with.

Really fast data, really clean level 2 for you to read and the tape, hands down the best trading platform.

If you want to try out DAS trader for 2 weeks for free, I have a link for you to sign up down below.

And you can see right now, we're not even supporting the $3.70s, we're actually getting pretty heavy right now.

And you also want to use the candlestick chart to confirm as well.

You can see we're trying to hold the $3.70s area.

So what happens is, for example, there is an ask at $3.74 right now, and showing $0.

When you see $0, this is supposed to be a size that's less than 100 shares.

But if you see the order going through on the L2, it's supposed to be less than 100 shares.

But if you keep on seeing prints going through on the L2, you see tons of greens at $3.74, and the size is a lot bigger than 100 shares.

If you see $2,000 going through $3,000, but this ask on L2 is not moving, then that means this seller is hiding their size.

They definitely have a lot more than 100 shares at $3.74 to sell.

So that's kind of what you want to look for, whether there is any bid or ask that's just sitting there and not moving.

That's where you know whether there is a hidden buyer or a hidden seller.

For me, I never use what I see strictly on the L2 and the tape for me to make buying or selling decisions.

I place more emphasis on the chart and how we got here.

So right now we're really heavy around the $3.70 area.

The $3.70 support, we want to know if that starts to break down.

If it doesn't, then we're probably going to dump.

You can see $3.70, we're trying to defend that a long time earlier.

Because on the chart over here, you can see $3.70 was prior support.

And also over here.

So what does that mean?

If we're testing it right now again for the fourth time, if we don't hold, if we don't see buyers start to bid it up at around $3.70, this stock is going to fall.

You can see tons of prints going through under $3.70.

It's all reds going through, only reds transactions being printed, $3.65, $3.70, and we're not even holding $3.60.

This is how you know the tape is heavy.

And it's not just because I'm seeing it right now on the L2.

It's because I know on the chart, in the prior areas, they had supported $3.70 over here, over here, and earlier just I guess 10 minutes ago over here.

But if we're not holding that again, the stock is probably going to get dumped.

You can see this is really heavy tape.

All the prints, they're trying to support $3.50 right now, and we're not holding $3.50.

Oh my god, this is a dump right now.

This is heavy dumping.

This is like a perfect example of a dump actually.

And you can see once we break down $3.70, the stock literally just plummets.

This is why you don't want to catch a falling knife.