The number of shares, forex lots or contracts involved in the last transaction. Scalpers , or traders who trade based on changes in how other traders are bidding and offering, use Level II data, which provides multiple levels of bids and offers. Level II provides more information than Level I data. Mainly, it doesn't just show the highest bid and offer, but also shows bids and offers at other prices.

Depth of Market (DOM)

Shows the highest five to 15 prices where traders are willing to buy an asset and have placed an order to do so. It means you not only see the current bid, but also all the bids currently below it. The number of shares, forex lots or contracts that people are trying to buy at each of the bid prices. The lowest five to 15 prices where traders are willing to sell an asset and have placed an order to do so.

The number of shares, forex lots, or contracts that are available at each of the ask prices. Level II market data provides the additional information needed to trade based on changes that occur in the bids and offers.

Some traders like to look at how many shares are being bid versus how many are being offered, which may indicate which side is more eager or more powerful, and may predict the short-term direction of the market price. This tactic is combined with watching the recent transactions. If most of the transactions are occurring at the bid price, it means the price could go down in the short term, whereas if most of the transactions are occurring at the offer, the price could go up. These methods may also be combined with chart-based strategies. Level II is also known as the order book because it shows all orders that have been placed and waiting to be filled.

An order is filled when someone else is willing to transact with someone else at the same price.

Level I and II are available for futures and stocks. Some forex brokers also offer Level II market data, although not all. Level II costs more than Level I for stocks and futures. Some brokers may provide all the data feeds for free, but typically charge higher commissions to compensate. Forex brokers that provide Level II data usually don't charge for it.

#2 – Support and Resistance (Left Order Book)

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Measure ad performance. Select basic ads. Create a personalised ads profile. In the first part of this guide, we looked at fundamental principles of the Order Book formation. There are only 4 basic signals — 2 signals for the left order book and the same number for the right one. One of the most ancient Forex legends says that major players haunt for the stop-losses of minor players. We do not know what really lies behind it: whether stop-losses are set by intuition at the levels where price is going to move to or the price follows them deliberately.

However, we can say by our experience gained during observation of the order book that price "looks" for stop-losses and causes them to trigger at the earliest available opportunity. But not all accumulations of stop loss orders are working. There is a set of criteria which this accumulation must correspond to so that it can be used as a signal:. These orders look exactly the same for market makers. In practice, we need to use such accumulations as trading targets and set take-profits at these levels. In the left orderbook, Take Profit and Limit Orders are colored in orange.

Introduction to Level II Quotes

The concentration of such orders near the price can serve as a level of support or resistance. A small number or the total lack of stop-losses at this levels is the necessary condition for the same levels to work. If stop-losses are present there, a signal will be canceled. These signals show you where the price will not move. However, they are less reliable and strong as compared to the signals generated by accumulations of stop-losses. Not quite successful traders tend to «wait out» losing trades.

They can hold a losing position for weeks just to close it at the breakeven level.

Order book forex trading

This behavioral habit creates huge clusters of such transactions. In turn, market makers like using these «stubborn» traders as a driving force. The scheme is simple: Sheep are enclosed in a pen loss and then clipped to the maximum move the price against the crowd … Sooner or later «sheep» will have to close their trades by stop-loss or margin call and every of the closed trades will move the price against the crowd even more.

We can also use these accumulations as a «trampoline» which price must bounce off. The «trampoline» is the right term since price can sink deep into this accumulation before it jumps after gaining momentum. Note how the price has sunk into accumulation of losing trades and then reversed in the opposite direction. In other similar cases, the price may sink through the entire depth of such trampoline, for example, up to the level of 1.

Level 2 order book forex

Depth of Market (DOM)

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#2 – Support and Resistance (Left Order Book)

Introduction to Level II Quotes

Order book forex trading