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Ron Augustine wrote:
> Question: How do you know when it's REAL and when it's MEMOREX??? (and
> please don't say you need to be psychic :)
The best advice I can give you here is this: If you're trading with such a
technique, you are going to find yourself messing up a LOT of exits. I'm far
from an expert in reading nuances in MM action, mostly because I have found this
sort of thing to be highly detrimental to trading. In fact, I've found that
even watching a L2 screen while in a trade causes me to be tempted to make
stupid mistakes. Sticking to charting, which ignores MM movement, and attempts
to smooth out intermittent price fluctuations, is the best way to avoid getting
shunted around by this stuff. Provided your technical skills are sound, you
should be able to benefit on balance without getting "fooled" by any of this.
This is not to say that L2 action isn't useful, but the tendency is to put too
much weight on intermittent MM action, which must be avoided.
As for the example you gave, first you need to remember that the size of MM
offers often differ significantly from what is posted. The 10k you normally see
represents the minimum size a MM is posting, of course. As for imbalances, it
isn't unusual at all for a rising stock to have an imbalance on the ask side.
Where the stock is trading - i.e. most offers on the ask or bid, is much more
important than the amount or size of MM posts. This is much more pertinent to
determining the likelihood of entries or exits at a specific price - IOW, if
there are a lot of MM's at your price, the chances of you getting filled would
be higher - but again, price action is going to determine this as well. The
identity of the MM's are going to matter as well - for instance, a larger MM
like GSCO or MLCO can be expected to fill more at a given level than the more
obscure ones - since they typically keep a higher inventory and handle larger
sell orders. Overall, though, the single most important thing is where the
orders are going off at - although you have to realize that this can still leave
you exiting at the wrong time, in cases where the move against you is only a
very short term retracement.
Regards,
A.J.
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