Dalton, Jones, & Dalton, Mind Over Markets, updated edition

Mind Over Markets, the book that popularized (and expanded on) Peter Steidlmayer’s Market Profile, was first published in 1990. Anyone who bought the book expecting a self-help manual would have been sorely disappointed because what they got instead was a pretty complicated alphabetic model for organizing the distribution of market data along price and time axes. Twenty-three years later James F. Dalton, Eric T. Jones, and Robert B. Dalton are back with an updated edition of their text, Mind Over Markets: Power Trading with Market Generated Information (Wiley, 2013).

The book itself is organized according to the Market Profile trader’s achievement level—novice, advanced beginner, competent, proficient, and expert—with the greatest time spent on the competent level. The expert trader gets a mere two pages.

Although the authors stress that Market Profile should not be used in a vacuum and that traders must always think and make their own decisions, they throw a couple of bones to those looking for “steadfast rules.” “[M]arket-generated information, when observed and interpreted through the Market Profile, will at times reveal unique situations that offer a high degree of certainty.” These special situations are: 3 to I days, neutral-extreme days, the value-area rule, spikes, balance-area breakouts, and gaps. “There are no guarantees, but one of the comforts of a Special Situation is the identification of a mechanical trade—a trade that almost has to be done (under the right market conditions).” (p. 239) As should be evident, the special situations are defined using Market Profile language; there’s no shortcut to identifying these trading opportunities. Moreover, “successfully using Special Situations involves a synthesis of market understanding, time, and experience.” (p. 262) There’s no shortcut to trading success in general.

In analyzing market structure, the authors are inclined to anchor intraday activity to the way the market opens. “With an understanding of market conviction, it is possible to estimate very early on where the market is trying to go, which extreme is most likely to hold (if any), and even what type of day will evolve. In other words, the market’s open often foreshadows the day’s outcome.” (p. 63) There are four basic types of opens—the open-drive, open-test-drive, open-rejection-reverse, and open-auction, all analyzed in some detail.

One of the theses of this book--familiar to many, very profitable to few, and treacherous to the unwary--is that “the best trades often fly in the face of the most recent market activity.” (p. 110) That is, when a market trades above or below an accepted reference point and fails to follow through, this often sets up a powerful reversal trade. And if the reference point of a higher time frame supports that of the lower time frame, the reversal move can be even greater.

The strength of Mind Over Markets is that it introduces the reader to a “way of organizing market activity as it unfolds.” But, caveat emptor, Market Profile “is not a system that predicts tops and bottoms or trend continuation any more than the teacher’s grade chart is an indicator of overall student intelligence.” (p. 8) Only fortune tellers have crystal balls.