If you want to read my previous posts – f o l l o w m e!
First of all, excuse me for the radio silence guys. I have been on a trip for the past 3 days, without internet or screens of any kind, so I could not post anything. (we're back to work now).
Right, let's get back to it.
In post 14 I told you that a candlestick chart is just a chart of past history. It provides information about the past. However, if you're looking to make it in penny stock trading, you should know what's going to happen – but not actually happen.
One has to check the inside of the order book. We call it \*\*Level 2\*\*.
Watching the first day of using Level 2 data in your broker app is mind blowing. A bunch of flashing red and green numbers moving at super light speed. It's just like the green text that scrolls in The Matrix.
It’s intimidating. It's simply a list, though.
Here is all it is:
The Left Side (Green): These are the Buyers (Bid). It tells you, for instance, that people are waiting to buy the specific number of shares, and they're willing to pay exactly that price.
The Right Side (Red): These are the Sellers (the Ask). It tells you how many shares are in hot demand and what price they wish to get for them.
So why is this significant? It is useful since it reveals the unseen walls.
To refresh you from a few posts back, let's return to our Breakout setup. The stock price is at $1.90 and it is heading up. It appears as if it will completely break through the $2.00 resistance level. My chart looks just beautiful. The book is huge. Your finger is almost on the "buy" button.
You then look at Level 2 screen.
On the red seller, right at $2.00, you have a huge “giant” order. There is a person there who is waiting to sell 500,000 shares.
It's a brick wall.
If a literal army of buyers does not come around and devours half of a million shares, it's gonna hit $2.00, smash into that wall of supply, and bounce back down to the ground with a loud crash.
Without looking at your basic line chart, you wouldn't notice that huge seller in the dark. You would have lost money at the initial price of $1.95 and be squashed instantly.
Your account was saved by Level 2. It shows you where the traffic is on the same day while you're still within the trade.
But... there is a dark side to Level 2.
The professional promoters understand that you are viewing the Level 2 screen. So they placed all man-made orders on the screen just to scare you.
It's a lot illegal, it occurs daily and it's known as Spoofing.
I'll explain in detail how they are manipulating the tape to take your shares in post #16.