On Becoming a Market Master

ON BECOMING A MARKET MASTER


The movie Jiro Dreams of Sushi is the story of 85-year-old Jiro Ono, perhaps the world’s greatest sushi chef. Achieving a prestigious three-star Michelin rating—despite being located in a Tokyo subway station—required a lifetime of dedicated, purposeful practice. As Jiro himself put it, “There is much you can’t learn from words.”

It’s ironic to follow Jiro’s quote with a bunch of words, but this is meant to point to the path for traders seeking mastery. While it’s easier to capture clients by telling them what they already want to believe, our goal is to provide an honest assessment of what it takes to become Jiro-level, in any endeavor.

Are you beginning with unrealistic expectations?

Most traders want to believe that by controlling risk and waiting for “setups” they’ll be profitable. But setups don’t exist. If they did, they’d be arbitraged away immediately. Computers are great at scalping pennies with blazing speed, but they consistently fail in areas that involve synthesis.

Trading is an art that develops over time. Without mentors, the trial-and-error period often lasts longer than investable funds. Even with guidance, you must discover your own unique approach. Successful trading comes from the complex union of market- and self-understanding. It’s quite common for traders to believe that their problems are psychological, but without a solid grasp of market understanding, you’re unlikely to identify detrimental mental patterns. For most, this requires a fresh start to learning to trade.

Luckily, market understanding can be mentored—that’s what we do at Jim Dalton Trading.

Know the perils of technical trading

Priced-based “momentum trading” is the most applied approach to trading, as price is the easiest factor to interpret. Momentum trading is classified as “technical,” but there are myriad other technical approaches, e.g., trend line with support and resistance, volatility, retracement trading, and so on. These technical methods are generally based on price alone—a single dimension. But the market is multi-faceted and ever-evolving, and when we talk about “market-generated information,” we’re referring to a multi-dimensional approach that considers price in relation to time and volume, which allows you to begin to understand the more actionable concept of value.

Jim Dalton Trading employs the Market Profile to visualize value, but this handy utility is not a “missing ingredient” that you should add to technical indicators; traders who do this are usually disappointed. If you’re not consistently profitable, you may need to embrace change. We can help.

Learn to identify dominant market forces

We start by positing the most important question a trader can ask: Who is dominating the market? It’s pivotal to recognize when longer, influential timeframes are in charge, then trade with them. When the longer timeframes are dominating, there’s generally a “trend” to the market. But like all things, trends revert to balance, or trading ranges. It’s not uncommon for markets to remain within trading ranges for months before a new trend emerges from the bracketing bedlam.

When markets are trending, intelligent traders simply pile on.

Because market-generated information is multidimensional, it’s applicable to all types of markets. What’s important is to recognize the behavioral characteristics of short-term traders. For example, when short-term price swings begin and end at exacting levels, it’s an indication that the market is being influenced by price-based traders. These players are often emotional, resulting in short-term inventory constantly getting too long or too short.

Market-generated information, visualized in the Market Profile, offers a deeper understanding of dominant active influences.

The distinction here is that more serious “trading money,” or “investment money,” commands much larger volume, which means you have to lead the market, rather than attempting to fill at precise prices. Knowing who is accumulating or liquidating inventory helps you assess if they’re getting too long or too short—which is when opportunities arise to trade with less risk.

Knowing who you’re competing against is a significant part of the art of market mastery.

Traders who are unable to identify their competition are unlikely to succeed. In fact, traders who are captive to price are likely lumped in with the roughly 95% of short-term traders who never make it to profitability.

Trading is an art, not a science

The art of trading begins with developing strong observational skills. In The Art of Learning: A Journey in the Pursuit of Excellence, author Josh Waitzkin notes that grandmaster chess players “look at less” and see more. I like to think of this ability as the “artful eye”—the ability to see through the tidal wave of inconsequential data to perceive the information that really matters. Once you can identify when the market is under the influence of influential competitors and learn their behaviors, you are better positioned to anticipate their actions and profit from that insight.

It’s not easy to differentiate between market participants, largely because most traders accept price as the most important indicator. We can’t repeat it too often: Price is just one dimension, and without context, provides no meaningful insight into which type of participant is moving the market.

At Jim Dalton Trading, we make trade decisions based on value. If you learn to employ an artful eye to recognize patterns—ahead of the herd—you can capitalize on temporary opportunities to take advantage of imbalances revealed in developing market structure.

You must understand what could have happened—and didn’t. By training your mind to organize observations you begin to see the big picture and avoid getting lost in price and emotion.

Back in the raucous floor-trading days, traders could literally hear a change in momentum. Now that the pits have gone silent, the Market Profile offers a similar advantage in evaluating the forces behind changing market conditions, but instead of sound, that information shows up in visual patterns. You can gain a competitive advantage by witnessing the auction process visualized in a multi-dimensional graphic.

If viewed with an artful eye, that information can give you a leg up.

Chunk your way to market mastery

A Duke University study found that 40% of your actions aren’t decisions, they’re habits. Habits form because the brain is constantly trying to save effort. The process by which the brain converts a sequence of actions into an automatic routine is known as “chunking”—the root of how habits form.

Learning to trade is a combination of learning good habits and changing old habits.

Whether you’re backing your car out of the driveway, playing concert piano, or learning to read, you must “chunk” your way to competence, then on toward perfection. You didn’t start out reading by opening the New York Times—you started by learning that these random shapes are actually letters. Over time, as you no longer have to think, “that is the letter A,” you learn that the letters combine to form words. Then you begin to understand that words combine to form sentences, which combine to form stories. Where before you saw weird shapes, you now glean meaning.

We encourage clients to simplify their decision-making process through chunking. The more information we chunk, the more we’re able to internalize what’s important, which becomes part of our deeper unconscious mind. This allows the conscious mind to avoid information overload.

What is difficult to communicate to prospective clients is the conditioning required to reach this state, when your brain automatically chunks relevant market information in a way that simplifies trade decisions. In addition, you must embrace the fact that all the time and effort in the world isn’t going to get you to mastery—unless you’re looking at the right information to begin with.

How to combine disparate parts into a “chunk”:

  • Decipher the basic building blocks
  • Understand how they connect into concepts
  • Practice applying concepts until they become automatic

Similar to how you learned to read language, you can learn to read markets. Just as you discovered that an assortment of letters reveals a story, the letters in the Market Profile combine to reveal stories about who is controlling market behavior—but only for traders who have dedicated the time to internalize the way the letters form patterns (like words and sentences) to reveal incredibly insightful narratives.

In the book Range, David Epstein describes how chunking helps explain instances of apparently miraculous, domain-specific memory—from musicians playing extended pieces by heart to quarterbacks making split-second decisions to throw. The reason elite athletes seem to have superhuman reflexes is that they recognize patterns of movement that tell them what’s coming before it happens.

“Over time the intuition learns to integrate more and more principles into a sense of flow. Eventually the foundation is so deeply internalized that it is no longer consciously considered, but is lived.”

  —Josh Waitzkin, chess grandmaster, in The Art of Learning

Embrace the dispersion model

The dispersion model is a handy tool for understanding how an auction gets underway, usually when an “innovator” enters the market. The innovator is followed by the “early adopter,” then the “early majority,” “late majority,” and finally the “laggards.” Once you internalize this concept, you will improve your ability to recognize meaningful shifts in market behavior.

During Jim Dalton Trading Intensives, we teach you to focus on the right information, as opposed to “more” information. In order to do this, you must let go of prior beliefs. You must let go of information that isn’t important. Fixating on old ideas is the single largest stumbling block we encounter in training traders. You can’t stack relevant, market-generated information on top of erroneous preconceived notions and expect to make progress. Change is hard.

Markets are constantly absorbing unanticipated information. Traders who have developed mental flexibility can transform these moments into a tangible advantage.

As traders go through our training process, they experience multiple “A-HA!” moments when a new insight yields enticing possibilities. The tendency is to stop at each one of these mini-epiphanies with the feeling of satisfaction that at last, you know it all. Of course, this couldn’t be further from the truth. Mastery—in any endeavor—comes from building on each breakthrough, methodically assembling a holistic understanding of an incredibly complex domain.

Give yourself room to learn—at your pace

Many of our clients participate in live offerings, such as the Intensives. These live courses are best for traders who have already developed a foundational understanding of markets and the forces that move them. We also offer recorded products, such as the Foundation & Application of the Market Profile eCourse, during which we replay important activity and provide insight, commentary, and draw special attention to context and nuances. In the recorded products, we bypass slow spots and annotate to emphasize the most relevant material. You can stop, start, and replay areas you’d like to examine in more depth. Clients that have chosen our recorded products (and watched them multiple times) tend to gain more value than they glean from live programs.

Ready to begin your journey to market mastery?

At Jim Dalton Trading, our goal is to make you a self-sufficient trader, free from the noise and clutter that creates decision paralysis. We’ll help you:

  • Develop a deep understanding of market-generated information.
  • Learn to feel who your competitors are by observing their behaviors.
  • Hone your intuition and develop self-understanding.
  • Use the Market Profile to identify odds-based trade opportunities.
  • Recognize over-exuberance in momentum trading to trade with less risk

We’re here to advance your understanding of how human behavior drives market activity, and how market activity influences your behavior.

Get started today at jimdaltontrading.com.

Resources for your pursuit of self-understanding

While we can’t fully mentor the “self-understanding” portion of market mastery, we have spent considerable time researching this area and recommend the following books:

Frequently asked questions

You often speak of two-sided trade. Is there a two-sided philosophy behind the Intensive?

Yes. While most participants pursuing skill-based activities engage mentors, individual mentoring is cost prohibitive. The Intensive’s purpose is to provide mentoring in a cost-efficient manner. In effect, you are trading your money for access to my experience and proven teaching style.

Who is the Intensive best suited for?

The Intensive focuses on short-term traders, who generally fall into two categories—day traders and those who hold positions for two to five days. We further break down short-term traders into two categories. The first we describe as “fast traders,” tantamount to traditional scalping. Fast trades are generally positioned counter to auction trends that stop and start at precise visual references, or within a tick of the reference. On the surface, fast trades appear to be simple, but they are mentally difficult to execute, as trade placement usually flies in the face of the most recent market activity. An important characteristic of the successful fast trader is to be reactive, without holding any emotional attachment to the trade; the trade either works quickly, or not at all. It’s not uncommon to see five or more fast trades in a day. The second type of short-term trader is more reflective and patient—what we call a “slow trader.” This trader is looking for two to three opportunities a day, recognizing that certain trades develop over time. These opportunities are dependent upon your ability to read market structure and sense the emotional reactions of your competition. While our audience is not heavily oriented toward swing traders, they would fall into the second category.

Are all Intensives the same?

No, because no two markets are ever the same. The primary differences are high vs. low volatility, and trending vs. bracketing markets. And of course, sometimes markets are in transition. Many of our clients engage in multiple Intensives to accumulate experience from changing market environments.

Will the February Intensive differ (other than market conditions) from the last Intensive?

Yes, the February Intensive will highlight my appreciation and advanced understanding of “chunking.” Professor Barbara Oakley, co-instructor of Learning How to Learn (the largest course in the world on any subject), has this to say: “I’m becoming increasingly convinced that ‘chunking’ is the mother of all learning—or at least the fairy godmother… Creating neural patterns—‘neural chunks’—underpins the development of all expertise. I have studied chunking for more than a decade. Michael Simmons, who teaches people how to learn, puts it this way: “Successful people are not necessarily smarter. They just do more of this” (referring to chunking).

How long will the material from the Intensive be available to me?

You have full access to Intensives, webinars, and materials for one year.

Is there a characteristic that differentiates client satisfaction after completion?

This is difficult to quantify, but we have observed that clients who go back and review each recorded session greatly enhance their comprehension; those intent upon mastering the material put in the extra effort.

As a new client, what is likely to be my most difficult hurdle?

The most challenging hurdle is letting go of past education and beliefs that were either wrong or nonproductive—it’s not easy to unlearn bad habits. Just adding new information on top of old information is liable to set you back.

Historically, who has been your best client?

I believe it is the client who has developed an understanding of market mechanics, but has not become deeply involved in more traditional market education—people who aren’t overly steeped in specific, formalized approaches that tend to look at markets in a limited way.