HIGH-GRADE NI-CU-PT-PD-ZN-CR-AU-V-TI DISCOVERIES IN THE "RING OF FIRE"
NI 43-101 Update (September 2012): 11.1 Mt @ 1.68% Ni, 0.87% Cu, 0.89 gpt Pt and 3.09 gpt Pd and 0.18 gpt Au (Proven & Probable Reserves) / 8.9 Mt @ 1.10% Ni, 1.14% Cu, 1.16 gpt Pt and 3.49 gpt Pd and 0.30 gpt Au (Inferred Resource)
Message: OT: A guide to LVL II Trading for newbies-great read
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A Guide to Level II Trading, Part III By Duke Heberlein Welcome back to the final installment of my TradingMarkets Guide to Level II trading. In Part 1, we covered the basic components of the Level II screen and how it came about. We also discussed the major market makers -- who they are, why it is important to know who they are, and what sub-strata of the financial landscape they occupy. Part II examined the activity on the screen and how to interpret the price action as it unfolds. In Part III, we will look into the games that market makers play, why they will attempt to hide their activity so as not to make it transparent, and what to look for to uncover a market maker's true intentions. Look To Follow The "Ax" When major players like Salomon Brothers (SALB) or Goldman Sachs (GSCO) have a large amount of order flow in a given security, many times they will not have the time or the luxury to play games on the Level II screen. What will interest them the most is getting their order filled for the client, and in many instances they will charge in with little hesitation. This makes the action on the screen pretty straightforward and simple to read. They will appear as a buyer of stock, spend more time on the bid side as opposed to the offer, and increase the size of their bids. For example, let's say that SALB has a large order from a mutual fund manager to purchase 500,000 shares of a particular stock. Observant traders recognize over the course of the trading session that Solly is snapping this issue up and, due to the amount they are buying, causing the stock's price to increase. SALB will do its best to to hide the order as much as possible, but due to the fact that on the Level II screen you are able to view SALB purchasing the stock, it becomes apparent that SALB in this stock is the "ax," or dominant market maker. What you want to develop in utilizing Level II is the ability to spot this type of activity and then follow the "ax." This is a very reliable strategy for a trader to employ, for it puts you on the same side as the big boys. Remember the laws of economics -- supply and demand. If a particular market maker continues to exhibit an insatiable appetite for stock, mirror him and do exactly what he does -buy if he is a buyer, and sell if he is selling. Level II screen of Qualcomm (QCOM) with Goldman Sachs (GSCO) circled. (Screen courtesy of QCharts by Quote.com) Here he has bid for 1000 shares and increased his bid (noted by the + sign behind the bid price). If he increases his next bid or comes and joins the inside bid with another similar-sized order, he is most likely accumulating this stock and because it is GSCO, is most likely the "ax." Keep in mind that the ax will not just sit there and continue to bid and buy over and over. Many times after a few trades are filled, they will pull the bid and disappear, only to come back later at the current bid or possibly even higher. This kind of action is what tips the market maker's hand, it is the ax. As the market maker does this over and over without selling on the offer side of the screen, you should recognize that it is not a seller -- it is a net buyer of stock. The market maker just wants to attempt to go about its business as quietly as possible, without attracting attention. An elephant trying to slip silently into a bathtub still makes quite a scene however, and with the Level II screen you can see the water spilling over the side in the form of the institutional buying. Stay with the ax as long as it is apparent that he is continuing to accumulate the stock. When he does not come back for more, or quite possibly he will even join the offer side, that is the signal for you to get out at that point. Stealing The Market Maker's Plays By comprehending the actions of market makers, you will be better equipped to predict their actions. The advantage for you as a small speculator is that when you analyze all of the possible combinations of tricks market makers will try to pull, there is only a finite number of 12 actions that market makers can take. By continuing to be attentive to the dealings of the big players, you can discern who is for real and who is not. Of these 12 moves an institution can employ, six will give an indication of rising prices and the other half dozen will be a harbinger of falling prices. The following table is the equivalent of the big boys' playbook -learn these 12 actions! Indicators of rising prices: 1. Increasing of the ask price -- MM at the inside asking price increases offer price, raising the price of the inside offer 2. Leaves the ask price -- MM moves its price upward from the inside ask 3. Joins the bid -- MM moves its price up to the inside bid 4. Refreshes bid -- MM will purchase stock at the bid and "refresh" bid at the inside market with more shares 5. New high bid -- MM quotes a higher bid than the other market makers 6. Moves from ask to bid -- MM pulls his ask and moves over and joins the bid (counter clockwise bullish motion) Indications of falling prices: 1. Decreases bid price -- MM at inside bid decreases price, lowering price of the inside bid 2. Leaves the bid -- MM alters price of bid lower than inside price 3. Joins the ask -- MM lowers offer to that of the inside ask 4. Refreshes ask -- MM sells at the offer and refreshes another offer at the inside price with additional shares 5. New low ask -- MM quotes a lower ask than the other market makers 6. Moves from bid to ask -- MM pulls bid and moves over and joins the ask (clockwise bearish motion) Now that you are aware of all of the moves that a market maker may use, we can now look at how they may put them to use. Let The Games Begin Market makers make use of the moves discussed above to attempt to keep their true intentions hidden. Never forget that the Level II screen is their territory, and while it is true that their actions are out in the open, they are (at least on the surface) only going to allow you to see what they want you to see. They like to play their cards close to the vest, much in the same fashion a good poker player doesn't give anything away until he finally throws down the hand. At some point in the game, however, he will have to show what he is holding. You will often encounter a market maker continuously pulling back the ask (or bid) a notch each time the offer will tick higher (bid ticks lower). When a market maker acts in this manner he may technically be "in the market" but he is not really in the game. When you see this, that particular MM is not one you want to follow. One of my favorite tricks is when a market maker will flash sizeable bids away from the inside market and then move it closer to the inside quote to give novice traders the appearance of being an aggressive buyer. One action should tell you all you need to know if the MM is for real or just throwing a smokescreen. The market maker in question in this scenario could actually be a seller of stock. Ponder this for a moment. You have a large chunk of stock to unload as a large institution that smaller firms and independent traders will be following. Would it not serve you well to get those you could trick into thinking you were a buyer to ride your coat tails and jump in and buy? You have just created a huge customer base to now sell to! What you want to do to see if this activity is for real, is watch if the market maker gets near the level of the inside quote and stops short -- if this happens he has tipped his hand. He is very likely dangling a carrot for others to chase. However, if he joins the bid at the inside quote and begins to acquire shares, the size can be assumed to be true with a good degree of certainty. If this action takes place an influx of buying pressure should ensue. If a firm has a rather substantial-sized order to either fill or unload, what they will often do (sometimes in the manner described above) to keep the size of the order as well hidden as possible. Let's say, for example, that Lehman Brothers (LEHM) decides to sell off a large holding in a particular issue. Most likely, he will only quote a small part of the order on level II. He will join the inside offer, sell some shares, and continue to come back and refresh his offer at the inside quote and sell more, over and over again. One thing to make note of when this takes place is which market maker is doing the selling (or buying). If you have been observing the activity in the stock over a period of time, you will have developed a feel for who its key market makers are. Was the MM performing the selling (buying) one of the key players? If the answer is yes, weight that factor a little more heavily into your decision. Putting The Pieces Together Unfortunately, much of learning to be a great tape reader on the Level II screen can be achieved only by practice. What I have attempted to do is give you a good education on the fundamentals necessary to trade, using Level II to help guide your buy-and-sell decisions. It is only a basic tutorial to get you started. What you have to do now is read the Level II screen with regularity to train your eyes, not only to spot what we have touched on in the past few weeks, but also to be able to react to what is unfolding in front of you, as the action will be fast and furious. When starting out, remember to give yourself time to adjust and, above all, don't make things more complicated than they already are. Take the time to monitor the stocks you are going to follow, learn who the major players are in a stock, and watch what they are doing on a daily basis. Only by keeping a vigilant eye will you be able to spot when a market maker is trying to pull the wool over your eyes. The most difficult part of using a Level II screen is that market makers are always on top of what the other MMs and traders are trying to do, so they are always trying to run as inconspicuous an operation as possible, to run underneath the radar and avoid detection for as long as possible. When smaller institutions and traders figure out what the big boys are up to, they make their job much more difficult. Therefore, they are going to be as sneaky as possible in their overt actions. You can see them lying in the high weeds, however, if you: • • • • master the basics learn who the market players are learn how they tend to function as an institution, and memorize the market makers' playbook Thanks for joining me for these lessons, and best of luck in your quest for trading profits! Copyright © 2001 by TradingMarkets.com, Inc.
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