I've heard in quite a few trader interviews and trading videos to be weary of manipulation tricks used in Level 2 (Depth-of-Market[DOM] & Time-of-Sale[TOS]) to deceive "retail" traders, yet I have found very limited resources detailing the types of manipulation.
Can anyone please shed some light on the types and how to spot/protect against them?
A few situations that I suspect.
- False supports/resistances by using gigantic Bid/Ask Sizes (BS/AS):
My Observation: I was trading XYZ, watching Level 2 when all of a sudden an uncharacteristic AS of 9,000(100x) appeared at $50. Normal AS was between 1-20(100x). What followed was slowly this 9,000 AS got "chipped away" down to 5,000 then disappeared at which point XYZ price skyrocketed by $2-3. I had erroneously sold at $50 thinking the gigantic Level 2 wall would press XYZ down.
Sometimes these gigantic sizes appear then disappear before "chipping away." Almost like a bluff.
This YouTube Video shows an example in which gigantic BS, which did not "chip away," was used and video poster speculates was used to support the price in order to squeeze shorts.
- Massive sales in AfterMarket:
This one I believe I've heard being explained as OTC/darkpool transactions simply being added to the tape but I'm not sure.
My Observation: I noticed a large spike down (Pink-1). So I placed a Limit Buy Order at $60 in an attempt to catch a good deal. The spike (Pink-1) occurred again as well as record (Pink-2) in TOS of trade for 11,590 shares at $58.84. Since Level 2 (Pink-3) was staying consistent, I assumed that my trade would have executed though it did not.
- Bid/Ask price lingering in Level 2 above or below price.
i.e. Price is $50, sometimes there will be Bid price lingering at $50.1 or an Ask price at $49.9. To my understand these should have been matched instantly.
Any insight into the examples I posted or others to be aware of would be greatly appreciated as well as any resources on the matter.