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Level 2 + Time & Sales For Beginners (Tape Reading 101) - YouTube
Channel: Master the Market
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hey everyone thanks for checking out
this video my name is travis i'm the
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creator of the master the market
education that you can find linked below
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in the description
and this is going to be a video going
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over level two and time and sales
and throughout this video we're going to
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kind of start with the basics and i'm
going to explain to you how you can use
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level 2 and time and sales
to actually improve your trading and to
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help you find the best entries and exits
on your trades and with that being said
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let's go ahead and get started right
away with
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the first thing which is what is level
two
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so level two is essentially just an
order book for stocks
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that's going to show you the buyers and
sellers in real time along with the
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price
the number of shares in the route that
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was used for their order
so basically this is going to look
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pretty much the exact same regardless of
which trading platform you're using
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uh you can see i have three examples
down at the bottom of what level two is
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going to look like
we have interactive brokers think or
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swim and etrade pro
and you can see that their designs are a
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little bit different with each platform
but overall the level two is going to
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look pretty much the exact same
okay so the main things that make up the
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level two
are really split up into the left side
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and the right side
now the left side we have all of the
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bids and on the right side we have all
of the asks
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so the bid is going to be the buyers and
that is going to represent really the
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demand for the stock
and on the other side of the spectrum
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the ask is going to represent all of the
sellers
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and that's going to really tell you the
supply for that stock
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in real time so anytime you place an
order to buy or sell
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that order is going to be shown on level
two um and it's going to show you
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exactly where your order to buy is at as
well as how many shares you're planning
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on buying and not only you can see that
but other traders that are watching
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level two for that stock
can also see that order until it's
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cancelled or until it's filled
so with that being said in a way you can
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kind of think of level two
as a visualization of the real-time
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supply and demand for a stock
and really this is very important for
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trading because supply and demand is
kind of the sole reason for stocks going
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up and down
and what i mean by that is if there is a
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ton of demand for a stock
meaning there's tons of buyers lined up
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at a specific price
and there's not very much supplied so
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there's not many sellers at that price
all of that demand is going to push the
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stock price higher and higher
until the supply starts to outweigh the
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demand for the stock
now one thing to keep in mind is that
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level two can actually be manipulated in
quite a few ways
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one way specifically is that orders can
actually be hidden from level two
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using different routes and different
order types mostly this is going to be
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done by hedge funds and institutions
people using
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algorithmic trading so you don't have to
worry too much about it
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as a new or even intermediate trader but
it is important to know because these
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manipulation tactics are ones that many
new traders fall for
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and if you stay tuned for the rest of
the video i'm going to show you exactly
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how you can actually spot one of these
manipulation tactics
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to kind of avoid falling for their trap
and to actually get on the right side of
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the trade
but anyway with that being said the
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other thing that is going to kind of go
hand in hand with the level two
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is what is known as the time and sales
the time and sales is going to show you
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real-time data
of each transaction made in the market
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so anytime you buy or sell a stock
as soon as that order is filled it's
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going to be displayed on the time and
sales
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again not only for yourself but for any
other trader that is watching the time
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and sales
for that specific stock now unlike level
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two like i just mentioned things can be
manipulated
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but with the time and sales every single
trade no matter what is going to be
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shown on the time and sales
there's no way that it can be hidden or
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no way that it can be manipulated
by hedge funds by institutions or by
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anyone for that matter
so because of that when you pair the
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level two and the time and sales
together
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that's where you can really get a full
story of the price action
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and that's when you're really going to
kind of set yourself up for success
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when it comes to reading that price
action and basing your trades off of it
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now to break down the time and sales a
little bit further you can see that this
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is actually broken up into three main
sections
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first it's going to tell you the time
and that is of course just the exact
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time of the transaction as soon as it
was processed
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and then you're going to have last which
is the last price of the most recent
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transaction
and then over on the far right you're
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going to have the size and that is going
to be the number of shares that were
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traded
in the transaction so again like i
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briefly mentioned already
to get the full story of the price
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action you want to make sure that you're
pairing the level 2 and the time and
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sales together
and when you do that together these are
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collectively referred to as the tape
and if you've been trading for a little
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while you've probably heard people
talking about tape reading
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and in my opinion tape reading is
probably one of if not the single most
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valuable skill
that any trader can possibly have and
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the reason for that is because it allows
you to see exactly what's going on with
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the stock's price action
in real time and that's going to put you
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at a big advantage over someone that's
just using
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lagging indicators for example like a
moving average or bollinger bands
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and the reason that those are considered
lagging indicators is because they're
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using past data
and when you're looking at the tape it's
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telling you exactly what's happening at
the very moment
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rather than using past data and again
there are many different ways that you
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can read the tape
and there are many things that you want
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to look for ultimately a lot of that is
going to be saved for a future video
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because it can get a little bit complex
i do of course talk about it in much
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more detail on my website but just to
give you an idea of some of the ways
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that you can use the tape
um i do have an example here of what are
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known as hidden orders
so first and foremost hidden orders are
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just large orders on the bid
or on the ask that are hidden from level
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two so to give you an idea of how you
may spot a hidden order
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uh for example let's say that you see on
the level two there's an order to buy
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100 shares
of a stock at five dollars however
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because you're reading the tape and
you're looking at the level two
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in the time and sales at the same time
over on the time and sales
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you see thousands and thousands of
shares being traded at five dollars
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but that same 100 share bid at five
dollars it's still there and hasn't
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budged from level two
in this example that tells you that
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there is obviously somebody buying much
more than a hundred shares
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at five dollars even though they only
want you to think there are 100 shares
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being bought
so you can use that information to
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pretty safely assume that there is quite
a bit of demand at five dollars
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even though a lot of it is being hidden
from level two
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so if you're still a little bit confused
bear with me for a moment because i have
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a screen recording here that should
actually clear some things up
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um in this example we actually have a
hidden seller so you're going to see on
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the ask over on the right side of the
level two
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which can be found right over here
you're going to see an order at 234
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that's pretty small
and at the same time over here on the
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time it's sales you're going to see
thousands and thousands of shares that
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were traded at 234
with the same small order on the ask not
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budging from the level two
and in that case you can obviously
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assume that there is somebody selling a
lot more than they're showing
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at 234 and all of that hidden supply is
ultimately going to drive the stock's
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price down
so i'm going to go ahead and play this
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screen recording here and uh we'll skim
through it just to show you exactly what
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we're looking for and exactly what i
mean by
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a hidden seller
now right off the bat keep in mind that
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234 is the price that we're going to see
the hidden seller at
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so you want to make sure that you're
looking at the size of how many shares
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are being sold at 234
and comparing it to how many shares are
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actually being traded at 234
and right now we have 500 shares being
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sold at 234
and we've already seen thousands and
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thousands of shares that were traded
just now
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at 234 and playing this a little bit
further you're going to see the same
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thing continue to happen over and over
until ultimately the selling takes over
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and starts to push the price lower
so we're seeing hundreds more already
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briefly the stock price is breaking out
above that 234
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but it comes right back down below it
and now we're actually going to see some
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hidden selling take over
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okay so right there again there's
thousands of thousands of shares that
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were already traded at 234
with still a very small order just being
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placed at 234
so that should already tell you that
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they're selling more than they're
showing
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and if we keep playing this you're going
to see more and more shares again at 234
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there's a couple hundred more
a bunch more there and more and more and
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more and we still have small
orders over here on the 234 ask
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a bunch more coming in at 2 34.
so at this point if you're watching the
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tape in real time you should be able to
see that there is somebody definitely
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selling a lot more than they want to
show a 234
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and if you happen to be in a long
position at the time that would probably
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be a red flag and would tell you that
you want to get out of position
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and either lock in your profits or cut
your losses and if you were just
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watching this and you didn't have any
position
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that would be a good indicator to
actually go ahead and short sell
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so you can profit from that supply and
profit from the stock coming back down
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in the future
and if i go ahead and fast forward
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through the rest of this recording
you can see that the supply definitely
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did take over and the stock pretty much
faded all the way back down to
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you know about two dollars per share
after it was just trading in the 230s
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not long ago
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so i hope this video was helpful to you
if you're someone that's brand new to
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trading
and you're just getting started with
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level two in time and sales
if you enjoyed please make sure to give
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the video a like and subscribe to the
channel so you don't miss out on future
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videos
and if you'd like to take your education
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a step further and learn about day
trading swing trading and even long-term
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investing
as well as have access to our exclusive
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market resources
in our trading chat room with over a
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thousand active traders all of that can
be found at my website master the market
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which will be the first link down below
in the description
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anyway thanks again for watching i hope
you enjoyed and good luck with your
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trading
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you
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