- Maybe you
are already familiar with the term "micro manage". For
those of you that are not, I define "micro manage" as
giving too much attention and weight to very minor details when
trying to achieve something of larger magnitude.
- For example, if one micro manages the building
of a house, he or she might spend too much time worrying about
how many inexpensive nails are used.
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- If you are trading using a basic broker such as Etrade or Ameritrade,
you are using a Level 1 order entry
 screen
similar to this one shown. Level 1 is usually a free on-line order
entry screen that gives the best bid and ask price for an equity
along with share volume and other minor detail. This is very easy
to use and because you can't see what is really happening inside
the market there is much less to think about. The big problem
with Level 1 is that you have no idea if there is a bid one cent
lower of 50,000 shares or if there is an ask one cent higher of
50,000 shares. In other words, you have no idea if there is support
or resistance relating to the current bid or ask prices being
displayed.
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- For those of you that are not familiar with Level 2, we will get into
how it works and then move on to the micro-manage part. You probably
noticed the big difference between the price of Intel in the Level
1 above and the Level 2 below. This has to do with the fact that
the Level 2 screen was captured months ago when the price was
higher. In case you don't know, the Level 2 screen typically is
part of a direct access trading platform.
This Market Maker Level 2 window is from Townsend's Realtick trading
software. It has a Level 1 screen at the top, an order entry screen
at the bottom, a ticker on the right side and a column on the
left for bid prices and a column to the right for ask prices.
Looking at these columns you will notice different colors. The
colors represent different levels each separated by one cent.
I'm not going into all the details here because that is one of
the functions of Princeton's TradeTutor courses, but if you study
it for awhile you will get an idea of what is going on.
-
- This Level 2 window shows all the trades that occur in real time for
Intel. This might be too difficult for beginners to understand
unless they see the Level 2 functioning during trading hours or
in a video, as you would experience using Princeton's TradeTutor.
So, for those of you that are using Level 2 we now move on to
the micro-manage part.
-
- Micro-managing the Level 2 window can not only make you a nervous wreck,
but it can cause you to make more trades than necessary. Some
of you are saying, "been there, done that". I can remember
in our trading room one trader in particular. He was mesmerized
by the Level 2 screen. He was so worried about the pennies that
he lost sight of the charts and indicators. The charts and indicators
tell you when to enter and exit trades, not the Level 2. Use the
Level 2 to try and get the best price after you have made the
decision to enter the trade. The Level 2 provides fast movement
and excitement compared to watching the slow movement of a candle
form in a 5 minute chart, so it is easy to lose sight of what
is really important. Use the Level 2 to help confirm support or
resistance you see forming on your charts. You might try covering
the Level 2 window with another window or minimizing it until
you need to use it. One thing is for sure. Using your trading
tools correctly is necessary for positive trading results.
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- Learning to trade is no simple task due to the skills and education necessary.
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