Markets in Profile

Markets in Profile explores the confluence of three disparate philosophical frameworks: the Market Profile, behavioral finance, and neuroeconomics in order to present a unified theory of how markets work. The Market Profile is an ever-evolving, multidimensional graphic that gives visual form to the market's continuing auction process, revealing the myriad underlying dynamics that influence market activity. Behavioral finance posits that investors are driven more by emotional factors and the subjective interpretation of minutia than by "rationality" when making investment decisions. And neuroeconomics is the study of how investor psychology permeates and affects the financial markets. Mr. Dalton explicates the ways in which irrational human behavior influences the market's natural auction process, creating frequently predictable market structure, which results in opportunities for investors to ameliorate risk. The book will improve investors ability to interpret change in markets, enabling better, more confident investment decisions.

Preface xi Acknowledgments xix Chapter 1 The Only Constant 1 The Creation of ERISA 4 The Rise and Fall of Relative Performance 4 The Fall of the Great Bull 6 The Rise of Absolute Return 7 Succeeding in an Absolute Return Market Environment 8 Pure, Unbaised Information 10 People Change Markets, Markets Change People 13 Chapter 2 Information 15 Fundamental Information 16 Rational or Irrational? 18 Market-Generated Information 19 The Auctions 20 Fair Value 21 Market Profile Fundamentals 22 Authors’ Note 22 Demystifying Market Behavior 27 Chapter 3 Timeframes 29 Breaking Down Market Timeframes 31 Scalper 32 Day Trader 32 Short-Term Traders 32 Intermediate Traders/Investors 33 Long-Term Investors 35 Your Timeframe Is your Strategy Cornerstone 39 Chapter 4 Auctions and Indicators 41 The Search for Value 42 Concept Review 45 Key Market-Generated Indicators 48 Perfecting the Art of Visualization 56 Chapter 5 Long-Term Auctions 59 Auctions in Action 60 The Compound-Auction Process 61 The EBB and Flow of Balance 62 Where Do Trends End and Brackets Begin? 64 Clarity in the Maelstrom 66 The Big Picture 68 Asymmetric Opportunities and Risk 72 Long-Term Strategy Development 74 Assembling the Big Picture: Context within Context 75 Chapter 6 Intermediate-Term Auctions 77 Convergence and the Bracketing Process 77 Defining the Intermediate Term 79 The Transition from Bracket to Trends 80 The Transition from Trend to Bracket 82 The Convergence of Intellect and Emotion 85 Accelerate the Learning Process 86 Prelude to a Sea Change 87 Hear the Bells A-Ringing 94 Countertrend Auctions 94 The Quest to Do Better than ‘‘Normal’’ 96 Oh, the Difference a Few Points Makes 97 Chapter 7 Short-Term Trading 99 Analyzing Short-Term Markets 101 Common Mind Traps 104 When and Where to Look for Short-Term Trades 105 Opportunities Around Intermediate-Term Brackets 106 Technical Indicators 106 Your Own Worst Enemy: Your Brain 110 Seeking the ‘‘Exceptionally Tasty Patterns’’ 112 All Prices and Opportunities Are Not Equal 116 Ongoing Forensic Investigation 121 Looking for the All-Important Reference Points 124 Never Be a Laggard 129 A Golden Opportunity 130 Fade the Extremes, Go with Breakouts 132 ‘‘The Expert Reasons Contextually’’ 137 Chapter 8 Day Trading Is for Everyone 141 What’s a Day Trader to Do? 142 What You Don’t Do May Be More Important than What You Do 145 The Real World in Action 146 Top Down 152 Lack of Conviction 152 Flight to Safety 153 Inventory Imbalances 154 Correction of Inventory Imbalances 155 Trend Traders’ Trap 157 Market Condition 158 Yesterday’s Trade 162 Example 1 162 Example 2 165 Example 3 167 Trader Checklist 170 The Market Is Open 171 Open-Drive 171 Open-Test-Drive 175 Open-Rejection-Reverse 178 Open-Auction 181 Day Trader’s Checklist 181 Example 1 183 Example 2 185 Example 3 188 Practice, Practice, Practice 190 Chapter 9 Profiting from Market-Generated Information 193 Timeframe Diversification 194 The New Paradigm 196 Appendix A: Market Update 199 About the Authors 201 Index 203