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How to Use Level 2 While Trading Stocks - YouTube
Channel: StocksToTrade
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- Remembering one of
the classic stock market
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videos Trading Places where there's
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all these guys in the pit they call it,
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in those colorful jackets.
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Yelling, screaming with
the tickets in the air.
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What're they talking about?
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And how does that relate to trading today?
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(upbeat energized music)
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Hey everyone Lead Trainer
with StocksToTrade,
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Tim Bohen here.
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We're gonna talk about something that is
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one of the most often
asked questions today.
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And how many traders tend
to overcomplicate it.
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But first be sure to subscribe.
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We put out many videos with breaking down
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all of these questions
that many of you have.
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And then also make sure
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to ring that bell below
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to get notified as soon
as these videos hit.
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We do a YouTube Live every week,
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where we release many videos
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breaking down a lot of these how-tos.
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Get that bell to get notified first.
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And then also comment below.
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Do you use level two quotes?
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That's what we're gonna talk about today.
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And I wonder if you use
them in your trading
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and if you find them useful?
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As you can see on my screen,
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we've got a level two box.
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This is actually Microsoft
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gapping up big on earnings.
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We're recording this video after hours,
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after Microsoft announced earnings.
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And you can see stock
is still very active.
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So, but what I want to talk about
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is what are we looking at here?
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Many people see all these numbers
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and colors and wonder what it represents,
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the how and the why.
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And how you can use it to trade.
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So lemme start by breaking it down.
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You've got two sides to the level two box.
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You've got the bidders and the ask.
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So, the bid side is the buyers.
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Going back to my beginning
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where I talked about the guys
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yelling with tickets.
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The guy on the left ,
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or the gal,
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(laughs)
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is the bidder.
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They're the traders
that are looking to buy.
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So they want to buy,
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they're the ones waving the tickets,
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yelling Buy buy buy!.
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And you can see you've got
different market makers.
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So this is a NASDAQ listed stock.
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So it's all electronic trading.
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So you can see ARCA, NASDAQ, EDGX, BATS.
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These are all just
different market makers.
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So depending on what
broker you trade with,
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you may or may not be able
to select the market maker.
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Or if you trade with like,
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Robinhood which is a you
know, a online broker.
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You may just get your market
maker decided for you.
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But just recognize these
are different routes,
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these are different market makers.
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Next column is the bid,
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the price those bidders
are willing to buy.
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Or or I'm sorry, the price
they're willing to pay.
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So you can see at 128.75
is the top bidder.
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The NASDAQ NSD market maker
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is saying I'm willing to pay 128.75
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and I'm willing to buy 100 shares,
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300 shares it changes quickly.
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This is a very liquid stock.
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So, that's the bid, the size
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and then vice versa on the ask size
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you've got your uh, your sellers.
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Which may correspond,
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remember electronic trading,
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they're grouping orders.
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So you'll see the names
match back and forth.
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Then is the ask price,
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so that's the price I'm asking.
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So just like with Craigslist,
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you've got a bid and an ask.
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So if you're the seller,
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that's your asking price.
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If you're looking to buy
something, on Craigslist.
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You're gonna bid you know,
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normally you're gonna bid less.
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Then, that shows the
market depth it's called.
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So that's the reason you've got
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multiple market makers,
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you've got multiple market depth.
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Expanding out from the transaction price.
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So next step is the level
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actually the level one box,
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which is over here on the right.
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That's showing completed transactions,
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because remember stocks do not,
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you know you hear about stock trading.
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There is no trade executed.
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Nothing happens with a stock.
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Unless someone is willing to buy
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and someone's willing to sell.
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So in the instance of Microsoft here,
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you can see this is what we call
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a very tight spread,
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you'll see the difference between the bid
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and the ask is only a couple cents.
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Now, if we bring up a less liquid stock,
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with a wider spread,
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you'll see much less activity.
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Because the idea is somebody's gotta
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come up way higher on the bid.
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Or somebody's gotta come way lower
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on the ask to complete a transaction.
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But then that become that
creates big swings in the stocks.
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So, avoid stocks that are illiquid.
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Avoid stocks with big spreads.
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'Cuz it's much harder to get in and out.
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Something like Microsoft,
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is ideal because if you change your idea,
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your trade plan,
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you can easily get out.
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Because of the tight spread.
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Then on the level one box,
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you see executed transactions.
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You can see the timestamp,
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the price the transaction took place at.
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So the price that a bidder
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and a seller came together.
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And then the number of shares.
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Something I get asked a lot about,
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especially with level two is,
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how do I 'Game the system",
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how do I make trades off of level two?
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This is sometimes an unpopular opinion,
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but especially in liquid stocks,
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especially NASDAQ stocks,
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it is very difficult to get a read.
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One of the thing one of the
simple realities of today,
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is there's a lot of HFTs,
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high frequency traders,
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there's a lot of spoofing going on.
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A great book to check out is,
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Flash Boys by Michael Lewis,
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great book, great stock market read,
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must read in my opinion.
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All of Michael Lewis's books are good.
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But he talks about spoofing,
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a lot of these level two games that go on.
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So the way I use it is,
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looking for sentiment.
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Is the bid upticking,
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you know are the bidders coming in?
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That would be a bullish sentiment.
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Or are the bidders going away?
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Are they lowering their price?
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Is the size going away?
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That tells you that less
buyers means less bullish.
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Vice versa if you're short,
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you're gonna look at the ask side a lot
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and say are there a lot of sellers?
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And are the sellers dropping their price?
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That could be commonly
interpreted as bearish.
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In summary you should be
familiar with level two.
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You should understand how it works.
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But remember only price pays.
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Focus on the chart,
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focus on the candlesticks.
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That is really in my opinion,
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the true path to finding a good trade.
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Unfortunately, a lotta games in level two,
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tough to get a read.
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And it's useful but don't,
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don't put too much emphasis on level two.
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So in summary,
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do you agree or disagree?
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Do you think I you know,
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I know I gave you a good tour of level two
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but do you think it's important?
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Or do you think it's maybe a little
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less important than I do?
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Explain below let me know,
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is level two great or
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is it just a guide?
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And as always be sure to comment,
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subscribe and ring that bell.
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And I look forward to seeing
you in the next video.
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Thanks for watching our video,
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be sure to comment below
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with any trading related question.
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We love answering your questions.
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Also like and share with your friends
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and be sure to subscribe to be notified
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as soon as our next video hits.
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If you're looking to expand
your trading your knowledge,
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don't forget to check out
all of our other videos.
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And be sure to click the trial below,
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