Jim Dalton’s Trading Principles to Live by in the New Year

Download the PDF here.

 

With the New Year in full swing, our Winter Webinar Series completed, and the 2015 Intensive kicking off on January 20, Jim Dalton has put together 40+ years of market wisdom to help you make the most of the opportunities ahead.

These trading principles were discussed throughout the Winter Webinar Series and are an integral part of Jim Dalton’s work. Jim has condensed these time-tested principles in one document for you.

We hope you enjoy them!

Value versus Price: The Auction Process

  1. Bids and offers are distributed via the continuous two-way auction process.
  2. Price is the market’s mechanism employed to advertise the bids and offers.
  3. No two prices are equal; a price made on increasing volume is quite different than a price made on decreasing volume.
  4. Successful traders trade value not the advertising mechanism known as price. Value sorts out the daily conflicts between timeframes.

Market Profile Structure

  1. Structure allows us to see distribution patterns, for example:
  1. P formations indicate short covering.
  2. b formations indicate liquidation breaks.
  3. Anomalies within Market Profile structure indicate structural weakness—these anomalies are likely indicating that the shorter timeframes are dominating the auction. The odds of a reversal have increased.
  4. Prominent and very prominent POCs often help us differentiate between timeframes. For example, rising prices with prominent and very prominent POCs below them may indicate that the shorter timeframes are carrying prices forward.
  5. Sorting out the above: When the longer timeframes are leading the way the shorter timeframes generally simply “pile on”. Market Profile structure is smoother and the Profile’s shape is more symmetrical.

Size of Opportunities

  1. No two opportunities are equal. Some opportunities are small while others are very big.
  1. The smallest opportunities occur when the market is within balance.
  1. For the day trader remaining within or just slightly above or below the previous day’s range suggests small opportunities. Wishful thinking won’t expand these opportunities.
  2. For the longer-term trader remaining within a trading range or bracket represents smaller opportunities.
  1. The largest opportunities occur when the market is out of balance (a gap) or attempts to trade out of balance and fails. A failed attempt then increases the odds that the opposite extreme will be tested.
  1. For the day trader the reference is the previous day’s range.
  2. For the longer-term trader the reference is the current bracket, trading range, or balance.
  3. Focus on the size of the opportunities to help you determine how long to remain in a trade. Some evidence shows that we get only about 40% of the good trades.

Cognitive Dissonance

  1. Cognitive dissonance is both positive and negative.The test of a first-rate intelligence is the ability to hold two opposed ideas in mind at the same time and still retain the ability to function.” F. Scott Fitzgerald

Successful traders can keep two conflicting views and continue to trade the shorter-term view. For example, the underlying structure is poor suggesting substantial longer-term risk; however, for the present time, the day timeframe trend or value is working higher.

  1. Unsuccessful traders constantly struggle with cognitive dissonance. For example:
  1. They can’t resist looking at the economic announcements. If the announcement is positive they can’t pull the trigger if the market-generated information is signaling a weak auction.
  2. Because they don’t like the market on a longer-term basis they can’t go long for a day trade that is justified on market-generated information.
  3. Overnight pricing is a constant source of cognitive dissonance for many. They intuitively want to believe what is just in front of them. (What they just witnessed in overnight trade.)

Trading the Odds

  1. Think in terms of odds. For example:
  1. When the market is trading lower; however, value is likely to develop to at least unchanged relative to the prior session, the odds of making much more on the downside are greatly reduced. Additionally, the odds of a rally are increasing.
  1. Earlier we wrote about big opportunities. A word about staying in good trades:

An example—the market is out of balance, tempo is strong, confidence is strong; the odds favor continuation. Thinking in terms of odds can temper your psychological need to take a profit or, help you fight the fear of giving back a profit.

Preparation

  1. No professional in any field practices their profession without constant preparation. The hours of preparation and training far exceed the event time. Because our event time is so long the prep will be less; however, there is no change in the training time to prepare you to compete.

Risk and Trade Management

  1. You can control the risk you take; however, you have no say over the market’s returns. You do have the ability to learn how to monitor for continuation. You control risk by:
  1. Placing stops at a structural reference and never using an arbitrary ‘money’ stop.
  2. Exiting a trade, whether a winner or a loser, if the odds for continuation no longer appear to be in your favor.
  3. Stops should seldom take you out of a trade. You should exit under your own power. This is where your confidence comes from—managing your trades helps you build confidence.
  4. Most stops are placed too tight. Intuitively traders think they are taking less risk by placing tight stops. In truth, most are actually taking more risk. It is similar to the analogy, “Death by a thousand cuts.” In this scenario a trader not only takes a small loss, but is often stopped out of a winning trade.
  5. Trailing stops should go from one structural reference to another, not based simply on profit earned.

Psychology

  1. If you find yourself looking too hard for a trade it is likely a poor opportunity. The good trades, providing you are properly observing market, just begin to reveal themselves. Properly observing means you are highly focused, are well aware of developing value, and are recording how the market is behaving at day timeframe references.
  2. Any time you begin to become afraid that you are about to miss a really good trade you become impulsive. Impulsive trades have a poor track record.
  3. The final sign of an emotionally maturing trader is a willingness to miss an opportunity if you are not comfortable with the trade.

 


For those who are ready there’s still time to register for Jim Dalton’s 2015 Intensive. Receive Jim Dalton’s Signature Trades Worksheet and become a JD Member when you enroll.


Take Your Trading to the Next Level!

2015 Intensive Preparation Webinar Part 2

Wednesday, January 14, 2014 | 4:15 – 6:20 pm ET

A follow up presentation to build on the concepts discussed in Part 1. More advanced, Jim explains nuances we’ll be looking for and other concepts involved in his market analysis:

  • How to determine inventory conditions
  • How to identify with whom we are competing – and why it’s important
  • How to interpret price action around identified references
  • Less known references such as rally highs, pullback lows, and others will be explained
  • And more!

S&P Recap and Preparation Report for Thursday, January 15, 2015
Download it here

Slides for Intensive Preparation Part 2
Download them here

2015 Intensive Preparation Webinar Part 1

Monday, January 12 , 2014 | 4:15 – 5:30 pm ET

We have several traders newer to Jim Dalton’s trading process enrolled and we want to ensure that everyone is Ready-As-Can-Be for the 2015 Intensive start on January 20.

Jim Dalton discusses the key elements of the mindset of a successful trader. Jim also provides an introductory discussion of the Market Profile and how he employs this unique charting tool in conjunction with other trading concepts to analyze and trade the markets.

Jim also reviews how you can get the most out of the upcoming five week Intensive Training.

To supplement Jim’s discussion on daily preparation, please download the following reports:

S&P Recap and Preparation Report for January 12, 2015
Download it here

S&P Morning Report for January 12, 2015
Download it here

BONUS:

We have included the S&P Recap and Preparation Report 1-13-2015 so you can read the reply of the 2015 Intensive trader, Mark, as he followed up to explain how he evaluated his trading discussed in the the S&P Recap and Preparation Report for 1-12-2014.

If you have not read this report, in the Recap and Preparation Report 1-12-2105, on page one, we copied the email from Mark where he reported that he had his first profitable week ever, five days profitable, last week. 

BONUSS&P Recap and Preparation Report for January 13, 2015
Download it here

Slides for Intensive Preparation Part 1
Download it here

We have a brief article at our Resources > Trading Articles page that you may want to read, What is the Market Profile. You can read it here.

First of Two Part Series: Signature Trading Opportunities

Thursday, December 18, 2014 | 12:00 – 1:00 pm ET

Join Jim Dalton as he evaluates current markets using his ‘top down’ trading process. By employing market-generated information and the Market Profile, Jim will illustrate how he formulates his perspective for the longer term, short-term, and day timeframe and how he uses these observations for his trade decision-making.

Please download the following reports to supplement Jim’s presentation:

S&P Morning Report for December 18, 2014
Download it here

S&P Recap and Preparation Report for December 18, 2014
Download it here

How to Use the Market Profile to Size Up Our Competition

Thursday, December 11, 2014 | 12:00 – 1:00 pm ET

How can we use the Market Profile to read the market’s two-way auction process with all its attendant emotional herd behavior? Jim Dalton will show how to use several Market Profile observations to compete and capitalize in the highly competitive game of trading.

Please download the following reports to supplement Jim’s presentation:

S&P Morning Report for December 11, 2014
Download it here

S&P Recap and Preparation Report for December 11, 2014
Download it here

Presentation Slides
Download them here

Thursday, December 11, 2014 | 12:00 – 1:15 pm ET

Please download the following reports to supplement Jim’s presentation:

S&P Morning Report for December 11, 2014
Download it here

S&P Recap and Preparation Report for December 11, 2014
Download it here

Presentation Slides
Download them here

Starting Immediately After European Close: How to Combat Overtrading

Monday, December 1, 2014 | 11:30 am – 1:00 pm ET

For European and overseas traders we have slotted this session at a more convenient time. The Market Profile is a powerful tool to guide your trading decisions. Jim Dalton will discuss various Market Profile observations that he uses that can have a profound impact in your trade decision-making.

Jim will also discuss the preservation of mental capital and although subtle, how significant this consideration is in your daily trading.

Please download the following reports to supplement Jim’s presentation:

S&P Recap and Preparation Report for December 1, 2014
Download it here

S&P Morning Report for December 1, 2014
Download it here

Presentation Slides
Download it here

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