Markets and Momentum E-Book

James F. Dalton

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 262

Veröffentlichungsjahr: 2025

Beschreibung

Elevate your trading strategy with actionable market insights from an industry pioneer

In Markets & Momentum: How Profiling Gives Traders an Advantage, James F. Dalton and co-author Robert B. Dalton dramatically expand on their revolutionary first book, Markets in Profile. Summarizing a lifetime of experience—from formative memberships on the CBOE and CBOT to his role as UBS Director of Hedge Fund Research—Jim challenges traders to recognize that market-understanding must be balanced with self-understanding. Jim’s deep market savvy is complimented by Rob’s engaging prose that adds a wealth of insight about the powerful influence of unexamined emotions, impulses, and habits on your trading success.

Jim promotes trader education through Jim Dalton Trading (jimdaltontrading.com), along with his partners Jennifer Loh and Raghu Rajput, driven by the knowledge that the only reliable, objective, actionable information is market-generated. This information is scientifically organized via the Market Profile, which is simply a contextual organization of time, price, and volume—the core components of any financial transaction.

Markets & Momentum offers:

• Deep dives into issues that lead more than 90% of day traders to lose money, including fading trend days, FOMO, doubling down on losing trades, and failing to let profits run.
• Strategies for minimizing the influence of news hype and analysis overload in order to remain focused on the only information that matters.
• Techniques for understanding your own emotional and intuitive reactions, and learning to avoid making impulsive decisions.

This book is ideal for day and short-term traders, and for longer-term investors seeking to improve trade entries and exits. Jim Dalton’s trading insights are supported by six decades of learning directly from the markets, as well as from his wide base of educational clients.

Markets & Momentum is a must-read for traders looking for guidance on developing the insights and skills necessary for conquering the short-term market.

Leseprobe

MARKETS & MOMENTUM

HOW PROFILING GIVES TRADERS AN ADVANTAGE

JAMES F. DALTON AND ROBERT BEVAN DALTON

Copyright © 2025 by John Wiley & Sons, Inc. All rights reserved, including rights for text and data mining and training of artificial intelligence technologies or similar technologies.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.Published simultaneously in Canada.

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ISBN 9781394318896 (Cloth)ISBN 9781394318827 (ePDF)ISBN 9781394318810 (ePub)

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PREFACE

Excellence in any endeavor – whether it's surgery, sports, or futures trading – can only be achieved by balancing the analytical and intuitive powers of your brain. Put another way, you must constantly seek to balance your conscious and your unconscious mind.

There is no finish line, no promised land where you'll always make the right trading decisions. There is only the process of seeking opportunities in an ever-changing market structure, and the process of making decisions free of the influence of emotional states that have been hard-coded in you, me, and every human being for thousands of years.

Everyone who reads this book will encounter a unique challenge, depending on knowledge, experience, and genetics. Even your current emotional state; how you feel influences how your brain creates connections, which then influences how you act.

That probably manifests in most readers as a desire to rush ahead to find actionable advice and immediately seek trades. This kind of urge is present in all of us. Unexamined, it has hindered many traders from the profitable careers they envisioned.

Can you put a price on patience? The cost of trading without it is extremely high.

The components of any financial transaction are time, price, and volume.

Only when an understanding of these fundamentals is deeply ingrained can we learn to identify herd behavior and wield our intuition, perhaps our most potent tool.

In order to beat the odds and end up ahead, you must confront the greatest obstacle of all – unlearning preconceived notions that lead to ineffective trading strategies.

We're so used to doing what we've always done that we don't stop to question whether it's the right thing to do at all. Many of our failures in performance are largely attributable to a lack of self-awareness.

— James Clear,Atomic Habits

INTRODUCTION

Over the years, I have purchased multiple copies of Shel Silverstein's timeless book, Where the Sidewalk Ends. The poem below is one of my favorites.

“Hector the Collector”

Hector the Collector

Collected bits of string,

Collected dolls with broken heads

And rusty bells that would not ring. Bent-up nails and ice-cream sticks,

Twists of wires, worn-out tires,

Paper bags and broken bricks.

Old chipped vases, half shoelaces,

Gatlin' guns that wouldn't shoot,

Leaky boats that wouldn't float

And stopped-up horns that wouldn't toot. Butter knives that had no handles,

Copper keys that fit no locks

Rings that were too small for fingers,

Dried-up leaves and patched-up socks.

Worn-out belts that had no buckles,

‘Lectric trains that had no tracks,

Airplane models, broken bottles,

Three-legged chairs and cups with cracks.

Hector the Collector

Loved these things with all his soul –

Loved them more then shining diamonds,

Loved them more then glistenin' gold.

Hector called to all the people,

“Come and share my treasure trunk!”

And all the silly sightless people

Came and looked … and called it junk.

BRIEF BACKGROUND ON THE AUTHOR

In 1972, I held memberships on both the Chicago Board of Trade (CBOT) and the Chicago Board Options Exchange (CBOE). You could say Hector was active in this chapter of my trading career.

Hector was sidelined a few years later when I became Senior Executive Vice President of the CBOE during its formative years. But after I left the exchange in 1979, he became active again.

It wasn't until the late 1980s that I attempted to shut down Hector once and for all when I collaborated with Eric Jones and my son, Rob Dalton, on my first book, Mind Over Markets; I stopped collecting every indicator and signal available.

As I read more and more about human behavior, neuroscience, and trading psychology, it became increasingly clear to me that “less is more” – successful trading is about leveraging the right information, not the most information.

When I became manager of a UBS institutional options trading desk, I began to systematically remove from our quote equipment many of the studies and indicators I had previously accumulated, just like Hector. After some initial pushback, we established a powerful trading desk, and many of my traders went on to enjoy notable careers.

The final confirmation of my anti-Hector philosophy emerged from Josh Waitzkin's book, The Art of Learning. Waitzkin was an international chess champion who also achieved fame in the martial arts, and one of his primary tenets was simple: “Depth beats breadth every time.” (More on Waitzkin in the “Reading List” in Appendix B.)

In my last incarnation at UBS Financial Services as Director of Hedge Fund Research, I discovered that interacting with multiple hedge funds solidified the “depth beats breadth” observation, changing my trading philosophy forever.

In 2017, I founded Jim Dalton Trading (jimdaltontrading.com), dedicated to advanced trading, mentoring, and education with my partners Jennifer Loh and Raghu Rajput (RJ). Our immersive trading courses and mentoring programs are widely recognized for their breadth and depth. Numerous experienced traders have credited our courses for propelling them to new levels, providing them with a competitive edge by honing their instinct for what motivates their competition, and what drives ever-changing markets. We focus on teaching traders how to cut through the noise – not with magical theories, but by applying a potent combination of observation and practical application to influence probability-based trading decisions, free of biases and bad habits.

My lifelong pursuit of understanding the power of market-generated information (MGI) has been an ongoing labor of love, encompassing many of the chapters shared. That pursuit will continue as long as I'm able to continue to observe the beguiling, often bewildering ebb and flow of price, time, and volume.

HOW THIS BOOK IS DIFFERENT

I wrote Mind over Markets more than three decades ago in an attempt to examine and codify my burgeoning understanding of the power of MGI.

When you write, you're engaging in both external storage and encoding. You're “storing” important information, making it easier to review, while at the same time improving the encoding process that secures ideas in long-term memory. In other words, what you write down has a much greater chance of being recalled again.

If you can't write about it clearly, you don't understand it.

—Shane Parrish

Writing Mind over Markets and the follow-up Markets in Profile helped solidify and codify my trading philosophy, centered around the visual tool of the Market Profile.

In my early years running a trading desk, when a trade went bad, I handed the trader a yellow pad and asked them to write down their rationale for the trade. If the trader couldn't clearly describe the situation quickly and easily, I knew they didn't understand the trade and I'd give it to someone else on the desk.

At that time, I often spoke about “self-understanding” being a vital component for success, but I must admit that I was painfully light in that area back then. My first two books reveal this dearth, in that there is next to nothing written about how to develop that all-important component of successful trading.

Since those early years, I've done a lot of thinking, reading, and most importantly, experiencing. So, while this book has much in common with Mind Over Markets and Markets in Profile, it represents the culmination of a career spent studying the way humans influence market behavior, and just as importantly, how markets (and the constant noise of the modern world) influence human behavior.

Importantly, we've eliminated strategies that I've since learned aren't viable. Concepts like “initial balance” and “range extension” – which I once investigated closely – have proven to be misleading and relatively unhelpful. Similarly, I used to detail the various types of market openings, which people loved because they seem programmatic… but they're simply not valid indicators.

I've weeded out those elements.

I was in Vegas speaking at “Traders for a Cause,” and a young trader asked how markets have changed. I replied that volume has grown exponentially and hedge funds and large firms now buy order flow, giving them a fractional head start by shaving nanoseconds in order to pocket billions of dollars.

Institutions have always attempted to keep their orders private. Dark pools, which are private exchanges for trading securities, have continued to expand. With the advancement of technology, almost all orders – from single lots to large institutional orders – are entered via algorithms.

Another meaningful change occurred in March 2020 in response to the COVID-19 pandemic, when fiscal and monetary policy led to extreme liquidity. Charles Schwab reported that approximately 15% of its 30 million+ customers arrived in 2020. These inexperienced clients changed the market, contributing to increased volatility. I believe this increased liquidity has been siphoned off by more experienced traders.

But really, the basic components have not changed at all: time, price, and volume are still the fundamental mechanisms of any transaction.

What also hasn't changed – and this is amazing to me – is the continuing dependence on momentum trading, which is based solely on price. But a single dimension can never account for the necessary depth of understanding. The Market Profile opened the door to more readily recognizing MGI. When it was first introduced, I struggled with the relationship between MGI and momentum. I now recognize that they're complementary – momentum is simply the leading indicator, and MGI is the lagging indicator.

MGI PUTS MOMENTUM IN ACTIONABLE CONTEXT

When I wrote Mind Over Markets, we were dealing with a novel technology; the Market Profile was a new tool for parsing real-time market activity, and as with any new technology, adjustments, refinements, and a deeper understanding of how best to employ that tool have developed over time.

Equally relevant, Mind Over Markets and Markets in Profile were both written before I had experience teaching traders how to use the Market Profile. I have dedicated the last three decades to mentoring and teaching traders how to understand indicators like momentum through the context of the Profile's constantly evolving distribution curve. This process has been a two-way street, as my extensive client interactions have educated me about the unique challenges that traders face, as well as the best methods for teaching them the fundamentals of market understanding.

In writing Markets & Momentum, we've culled both books, eliminating factors that have proven to be irrelevant. We've whittled it down to what is most important, adding depth around self-understanding, which can only be developed through consistent effort over time.

It's vital to embrace the fact that the greatest obstacle to your success is you. If you aren't aware of the fact that your subconscious is often driving your behavior – manifest in bad habits, illogical shortcuts, and the potent engine of rationalization – then you may be making decisions based on invisible factors.

Until you make the unconscious conscious, it will direct your life and you will call it fate.

—Carl Jung

THE SUCCESS OF THIS BOOK DEPENDS ON BOTH OF US

This book was born of my desire to share the knowledge I've accumulated over a lifetime studying market and human behavior. We'll begin with Part I, a “Foundation” section that establishes key, non-linear concepts that must be internalized before you begin to trade. Read it, take notes (we've included empty pages in the back of the book), and begin your lifelong process of investigating your unique approach to processing information; it is only by discovering how your emotions, subconscious, and layered learning influence real-time decision-making that you can hope to become a successful trader.

Part II, the subsequent “Fundamentals” section will provide you with an essential understanding of the market's continuous, two-way auction process, as well as the theory behind the Market Profile, which is simply an intuitive way to organize and visualize this process.

Many members of the trading community believe I'm a “Market Profile trader.” This is not true – I'm a discretionary trader who employs the Profile as an efficient tool for organizing the market's unfolding auctions. In all empirical pursuits, the better the data is organized, the greater the odds that you'll be able to glean important insights.

Having worked with traders and clients for half a century, I have recorded many observations. First and foremost: It's too easy to become a trader. With a few thousand dollars you can open a brokerage account and, boom: you're a trader. But by most estimates, the average trader's chance of success is painfully small.

Why do so many people lose? Statistically speaking, it should be impossible for so many people to lose. If the market is random—and most of the time, market momentum is indeed random—why do 90% of clients consistently lose a 50:50 bet? The answer is as simple as it is complex. It isn't the market beating them. They are beating themselves.

—Tom Hougaard,Best Loser Wins

As you focus on becoming a trader, understand that it's no different than becoming a surgeon, musician, or professional athlete; it's one thing to sit in the stands and critique a baseball game, and quite another to stare down a fastball coming at you at a hundred miles an hour.

A difficult challenge for short-term traders is that when you become part of a group there is a tendency to become like them. Remember, all the anecdotal evidence suggests that less than 10% of the group is profitable. Our surroundings influence us. We unconsciously become what we are near. As you adopt the behavior of those around you, the changes are often too subtle to notice until it's too late.

—Shane Parrish,Clear Thinking

PART IFOUNDATION

CHAPTER ONETHE SECRETS OF SUCCESS

We often read books as passive observers, letting the narrative wash over us without actively engaging in the experience. This is not that kind of book – you must join me as a participant if you wish to gain ground and move forward toward the pinnacle of expert trading.

Even as a willing participant, however, it can be difficult to orient yourself unless you know where you are, as a trader, right now. To respond to this challenge, it's necessary to conduct an honest self-assessment. The following guidelines are designed to assist you in this endeavor.

The majority of successful traders I've known are far more productive when engaging in go with trades; they often execute trades in the direction of the salient trend. If they're day traders, “go with” means following the daily trend, or “developing value” (an important pattern we'll address later in the book). Swing traders, on the other hand, tend to execute based on the intermediate, or longer-term trend.

Most short-term, non-professional traders have taken courses that preach “reversion to the mean.” They're also taught to wait for signals that confirm a trade. In my experience, successful traders actually shun reversion-to-the-mean trades!

In today's fast markets, waiting for confirmation often results in missing profitable trend days (we will discuss trend days in Chapter 14).

SUCCESS REQUIRES CONSTANT PLANNING AND REHEARSAL

In my educational seminars and programs, we frequently refer to “homework,” as in, “If you haven't done your homework, you haven't earned the right to trade.”

All traders have great intentions, but family, friends, news items, and myriad other commitments and interruptions can transform these intentions into regrets. In order to make progress on the road to becoming a successful trader, you'll have to take a close look at your intentions and tendencies and accept some potentially difficult truths about how you process and act on information. But that's the game. And you either play it with an open, focused mind, or you get played and join the more than 90% of short-term traders who lose money in the markets.

Do you double down on losing trades? This is one of the most dangerous habits inexperienced traders suffer. A wise person once said, “When you're in a hole, stop digging.” The use of the word “habit” here, is deliberate. In Chapter 6, we'll review actionable approaches to changing the habits that decrease our odds of success.

Which brings to mind a metaphor that might prove useful as you assess your own inclinations. Neuroscience makes it clear that our standard modes of thought become physically ingrained; when we think the same thoughts over and over, we forge neural pathways – superhighways of brain activity that become increasingly easy to traverse.