Mind Over Markets

JAMES F. DALTON has been a pioneer in the popularization of the Market Profile, a unique method of identifying trading/investment opportunities. He has been involved in the stock and futures markets for more than forty years. Currently a full-time trader, Jim advises two hedge funds and several trading firms. He is a discretionary trader and longtime proponent of employing the Market Profile to facilitate trading. Jim began his career in the investment industry as a broker with Merrill Lynch and Shearson Lehman. He is the coauthor of two books, the original edition of Mind Over Markets and Markets in Profile (Wiley). ERIC T. JONES is a Senior Managing Director and Head of Advisory Solutions and Product Development at TIAA-CREF. His past experience includes more than twenty-five years of developing new investment products and programs designed to help individual investors more successfully achieve their financial goals and dreams. Eric is the coauthor of two other books on the financial markets, investments, and trading: Hedging Foreign Exchange and Markets in Profile (both from Wiley). ROBERT B. DALTON is a partner at Karass Creative, a Seattle agency that bonds brands to tribes by telling stories that matter. For two decades, he has woven compelling campaigns across myriad media—from Addy-winning websites to short films and poetry—for a long list of artistic, nonprofit, and corporate clients ranging from Starbucks to TEDx. He is the coauthor of Markets in Profile (Wiley).

Preface xiii Acknowledgments xvii Chapter 1 Introduction 1 Chapter 2 Novice 7 Laying the Foundation 9 The Auction 9 Organizing the Day 10 Challenging the Rules 15 The Role of the Marketplace 16 Going with the Crowd 17 Introduction to Day Timeframe Structure 19 Normal Day 19 Dynamics 19 Structural Characteristics 21 Normal Variation of a Normal Day 21 Dynamics 21 Structural Characteristics 23 Trend Day 23 Dynamics 23 Structural Characteristics 23 Double-Distribution Trend Day 25 Dynamics 25 Structural Characteristics 25 Nontrend Day 27 Dynamics 27 Structural Characteristics 27 Neutral Day 27 Dynamics 27 Structural Characteristics 28 Day Type Summary 31 Chapter 3 Advanced Beginner 33 Building the Framework 34 The Big Picture: Market Structure, Trading Logic, and Time 34 A Synthesis: Structure, Time, and Logic 35 Ease of Learning 36 Amount of Information 36 Recognition Speed 37 Trade Location 37 Confidence Level 37 Summary 38 Evaluating Other Timeframe Control 38 Other Timeframe Control on the Extremes 40 Tails (or Extremes) 40 Range Extension 40 Other Timeframe Control in the Body of the Profile 40 TPO 41 Initiative versus Responsive Activity 45 Trending versus Bracketed Markets 49 Key ElementsA Brief Discussion 51 Trending Markets 54 Bracketed Markets 54 The Two Big Questions 56 Chapter 4 Competent 59 Doing the Trade 59 Section I 60 Day Timeframe Trading 60 Day Timeframe Directional Conviction 61 Opening Call 61 The Open 62 The Open as a Gauge of Market Conviction 63 Open-Drive 63 Open-Test-Drive 65 Open-Rejection-Reverse 68 Open-Auction 69 Open-Auction in Range 70 Open-Auction out of Range 71 Summary 73 Openings Relationship to Previous DayEstimating Daily Range Potential 74 Open within ValueAcceptance 75 Rejection (Breakout) 79 Open outside of Value but within RangeAcceptance 80 Rejection (Breakout) 83 Open outside of RangeAcceptance 84 Rejection 85 Summary 85 April 13,1989 86 Crude Oil 87 S&P 500 87 Gold 90 Japanese Yen 92 Soybeans 92 Treasury Bonds 92 Summary 95 Day Timeframe Auction Rotations 96 Two-Timeframe Markets 97 One-Timeframe Markets 97 Using Auction Rotations to Evaluate Other Timeframe Control 97 Structure 99 Half-Hour Auctions 100 Extremes 100 Range Extension 101 Time 101 Identifying Timeframe Transition 102 December Swiss Franc, October 12, 1987 103 Y to E: One-Timeframe Buying 104 E: Time 104 Y to F: Auction Test 104 G: Transition Confirmation 104 E to H: One-Timeframe Selling 105 H: Auction Test 105 I: Transition Confirmation 105 H-J: One-Timeframe Buying 105 Summary 105 Auction Failures 105 Excess 110 Signs of Excess 111 The Rotation Factor 112 Monitoring the POC or Fairest Price 115 9:30 a.m. Figure 4.30 116 10:00 a.m. Figure 4.31 118 10:30 a.m. Figure 4.32 119 Noon Figure 4.33 119 2:00 p.m. Figure 4.34 119 The Close 120 Day Timeframe Visualization and Pattern Recognition 122 Short-Covering Rallies 123 Long-Liquidation Breaks 127 Summary of Short Covering and Long Liquidation 128 Ledges 129 Summary 130 High- and Low-Volume Areas 131 High-Volume Areas 131 Identifying High-Volume Levels 132 High-Volume Examples 134 Low-Volume Areas 138 Low-Volume Examples 140 Summary 144 SummaryDay Timeframe Trading 145 Section II 145 Long-Term Trading 145 Long-Term Directional Conviction 146 Attempted Direction: Which Way is the Market Trying to Go? 146 Auction Rotations 147 Range Extension 147 Long-Term Excess 150 Island Days 152 Long-Term Tails 152 Gaps 155 Summary 155 Buying/Selling Composite Days 155 Summary 157 Directional Performance: is the Market Doing a Good Job in its Attempts to Get There? 157 Volume 158 Evaluating Changes in Volume 158 Volume as a Measure of Directional Performance 158 Value-Area Place