How to Use Level II Stock Quotes for Day Trading

Level II stock quotes can be a valuable source of information for day traders. Day trading is a very fast-paced activity and must make buy-and-sell decisions quickly. The quality of theses decisions can be the difference between large financial gains, or large losses. Successful day trading requires quick information, in the shortest possible amount of time. Level II stock quotes are often the answer to the challenges faced by day traders because they give the current bid and ask price of a particular stock.

What are Level II Stock Quotes?

The bid price is the price a broker will pay and the ask price is the price the seller will accept.  A basic quote also gives the daily, and yearly prices. These quotes usually provide statistics on the volume of activity in a particular stock. For example, it will list the number of shares bought and sold on a given day. For long term investors, level I quotes provide information because the focus for long-term investors is typically defined in terms of years. The short-term fluctuations in the stock market are often not part of the investing decision. In fact, attention to the short-term market changes can be counter-productive for long-term investors. On any given day, the stock market can be influenced by world events and industry news. Many times, these things are not related to the long-term value of a stock.

On the other hand, day traders are focused on the short –term. Their success depends on the daily ups and downs of the stock market. The additional information contained in Level II quotes provide the critical information they need. In addition to the information in basic quotes, Level II provides details on the types of traders. A level II stock quote will identify retail and institutional traders. It will list bid and ask prices. The bid and ask prices are also ranked. Level II quotes are generally provided in real time, which is another advantage for short term investors.

Using Level II Quotes for Day Trading

The key to success for day traders is identifying short-term trends; they must determine where a stock is heading. They need to answer whether a stock will experience a short gain or loss. Level II quotes will allow an investor to determine what institutional investors are doing. The large size of the institutional trades can often be an indicator of where a particular stock is headed. Therefore, with Level II quotes, the day trader has the advantage of not only knowing the volume, but also the details. The buyers and sellers are identified in these quotes. Also, the real time nature of level II quotes can allow traders to make split- second decisions.