How I like to use level 2

As we start posting more and more in the upcoming weeks and months I thought it might be a good idea to explain more about Level 2.  This level is something I use for momentum plays.  The world as you know it is all about speed so we developed something to quickly find stocks in uptrend’s (or downtrends) without looking through 1000’s of charts.  I use the word quickly very loosely as this took several years to develop but that’s now all in the past.

What we do in this level is analyze almost every metric related to price so we named it the technical level.  Today we use about 69 ratios (per ticker) for this filtration process and review up to 75 ETFs or equities all at once by sending out internet drones to retrieve the data so we can download the required information and dump that into the proper destination and eventually let math take over from there.

Below is our input page where you just enter the list of tickers and press enter

Lvl2INPUT

For this run I decided to use the 24 ETF ticker template which only reviews ETFs.   After all the data required for this level is downloaded and calculated through the JXM, it automatically sorts the tickers from strength to weakness (this is shown above from green to red).

Below you will see see a snapshot of the core data which visualizes all the ratios we use for the level 2 filtration process.   This is just showing the top 5 which are in a bullish uptrend (highest score of the 24) it also shows each ratio that was analyzed.

Like other levels, we focus on creating categories.  These are precisely broken down by importance such as key indicators, momentum and charting indicators.  Then we break it down even further by using 9, 14, 20, 50 and 100 day charting indicators while also focusing on 5, 20, 50,100 and 200 day activity.   We compile all of this data then send it through our proprietary scoring system to create a final rank which is what we eventually sort by to create the ranking or final sort.

lvl2COREDATA

Now that we have an idea of what countries or commodities are in an uptrend (or downtrend), we can take this to another level and further review the holdings that make up each ETF.

While I am more of an upside trader, you can most definitely use this for finding weakness or short opportunities.   

For this example we will choose the highest ranked ETF which was EWG (Ishares Germany Index -Fund) this is where I like to duplicate the efforts from above and re-run that 24 template but with the holdings that make up the ETF (shown below).  A preference of mine is to trade more individual names instead of the actual ETF (I feel like I can get a higher % gain with common stock vs. the actual ETF)

GERMANYbreakdown

After the JXM is done doing its thing, the output is re sorted again from best to worst and now we will just look at the top two (HEI and SAP shown below)

GERMANY

HEI is what we call hot right now.  It’s dominating in almost every category and hits almost a buy on every ratio.  It may not be something we want to buy right away but could be something we put into the watch list and later look for support.  I will explain more about this later but before I get into the charting side of HEI, I just wanted to recap how level 2 can be used as a standalone level.

First, you start with a list of ETFs and run the database, they you find the ones with the highest score and focus closer on its holdings.  From there you can re run the database and come up with a few common stock names to analyze further.

The best part of this process is you can have 75 tickers fully analyzed in under 5 mins and consistently review the top 2-5 bullish (or bearish) names in a very short period of time.

The last step is where I pull up an actual chart, add lines and see if it makes sense to buy right away or wait for potential support.  One of the issues I see with HEI is that it already broke out so the risk reward entry may have already took place (shown below).  This is where I may try and find some names closer to around 7-80% (HEI was 96%) and see if I can locate a few  that are about to breakout or at the very least at the top of a base.   We can discuss some of those methods at a later date but don’t get the level 2 final score confused with basic RSI (relative strength index).  They have nothing in common, for example the RSI shown below is declining over time as price keeps making new highs while our score is highly correlated with price

Today I just wanted to explain more about level 2 and how it could be used as a standalone level so hoped that quick summary helped.

HEI

Advertisements

2 thoughts on “How I like to use level 2

  1. Peter Heller May 16, 2017 / 9:01 am

    Great stuff!

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s