Customer Reviews

Markets in Profile: Profiting from the Auction Process (Wiley Trading)

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When I initiated an internship program for new traders at a proprietary trading firm, I began by providing students with a conceptual overview of markets and the factors that make markets move. That overview drew heavily upon the book "Mind Over Markets" by James Dalton, Eric Jones, and Robert Dalton. Quite simply, that book is the most readable, lucid, and insightful work on the auction process underlying trading markets that I have yet encountered.

You can imagine, then, my delight when I had the opportunity to read an advance copy of the authors' new work, "Markets in Profile" and provide a review statement for the book's cover. I turn down these endorsement requests rather often. Frankly, many of them are simply favors being done by buddies and don't reflect an actual reading of the text. The least authors can do for their readers is keep it real.

There was no problem in my keeping it real when I wrote that "Good books teach, but the best books enlighten". Markets in Profile is one of those enlightening books, because it takes the conceptual framework from the first book and applies it to concrete trading time frames and trading scenarios. In that sense, I would say it is a worthy bridge between theory/understanding and practice.

A core theme of Markets in the Dalton, Dalton, and Jones text is the following nugget: "If you can correctly identify which timeframe is in control of market activity, and you have a good understanding of how the individual timeframes generally behave, then you are in a stronger position to trade, invest, and effectively control risk." The practical aspect of the book is that it illustrates how to read the Market Profile to grasp the long-, intermediate-, and short-term auctions and place current market activity into a proper context.

Time and again I have observed that a trading edge comes from understanding what is happening at the timeframes greater than the one you're trading. If you're in a trading range, you might want to be prepared for a breakout. Which way is it likely to break? Using price, time, and volume to see how value is being established at those larger timeframes provides invaluable clues.

As the authors also explain, observing volume patterns as the market moves away from value at one timeframe is very important to understanding whether or not we will return to value or reprice value (perhaps in line with the longer-term auctions). Seeing these dynamics evolve over time helps traders understand what is likely to occur, but also *why*.

I find the authors' use of examples, charts, and Market Profile diagrams to be quite helpful. This is not an encyclopedic work; it's a very readable 200 pages. By the end, however, readers will have a solid understanding of how to apply auction-based principles across timeframes and frame their trade ideas with that broader understanding. A particularly practical chapter is the one on day-trading, which shows how these principles are relevant to the active trader.

The authors make clear that Market Profile is not a trading system, but a framework from which trading ideas can be derived. My analogy isn't perfect, but perhaps it will make sense: Just as the periodic table helps chemists organize their understanding of elements and predict how elements are likely to interact with one another, the Market Profile organizes data on price, time, and volume to help traders anticipate market behavior. We have types of elements (metals, non-metals) and combinations of elements, and we have types of markets and combinations of markets: knowing type provides invaluable clues as to likely behavior in various situations.

It's rare that I don't have some reservations about a book. This one is clearly written, straightforward, and doesn't get away from its topic. There's no fluff, and (mercifully) there's no chest-beating self-congratulations from authors who try to make themselves out to be gurus. Markets in Profile is simply a guide for putting theory into practice at different time frames. That, in itself, is unique in the trading literature.

At only 200 pages, Markets in Profile isn't exactly a hefty tome. Don't let its length deceive you, though. This is an intellectual book which incorporates a fairly wide array of topics, including some common academic theories, in to the mix. While there are loads of graphics included to provide visual examples in support of the text, which serves to cut down the actual amount of textual content, do not expect to breeze through this book in an afternoon sitting. It delves in to the heart of trading in a way that will force you to examine how you approach the markets.

One of the things that most, if not all of us forget when we're analyzing and trading the markets is exactly what's going on. We see the movement of prices and fail to remember what is really happening to create that price movement. That's the auction process. To quote the authors, "... price and volume move over time to facilitate trade in the pursuit of value."

A great deal of effort is expended by market participants to determine value. Fundamental stock market analysts spend hour upon hour trying to come up with a figure that represents the worth of a company based on earnings, book value, and other factors. That is all fine and good, but it is the market, in the end, which defines value. And it does so on a running basis.

The problem we market participants have is that we focus too much on price, which the authors indicate is merely the advertising side of the auction process. They demonstrate how price is just a way for the market to seek value. There's an important distinction here. Price is not value. It is just a way for the market to find value, which is defined as the price area where volume is generated because buyers and sellers meet in agreement.

To help us understand that process, the authors use some easily understood examples to define the basic mechanisms of the financial markets. They are the same as in other markets, after all. The process might operate faster and on a broader scale, but otherwise it is the same. Sellers are trying to recieve the highest possible value in the sales price, while buyers are trying to minimize the price they pay in relation to the value the expect to recieve. When there is disagreement between the two, little trading takes place. When they agree, lots of trading happens. It doesn't matter if the product is automobiles, banannas, or stocks.

About the first half of Markets in Profile is laying the kind of mental groundwork needed for really getting in to the analytic method known as Market Profile. Market Profile is the technique the authors use to identify the levels where the market has found value and when the market is in search of value. It is an approach first developed by Peter Steidlmayer (see Steidlmayer on Markets) at the Chicago Board of Trade (CBOT) for the futures market, and which they spent considerable time defining and outlining in their previous book, Mind Over Markets.

On the surface, Market Profile appears to be just another way to present price history in graphic form. The authors, however, demonstrate how the Market Profile distribution patterns put "market-generated information" to excellent use in identifying value and the market's pursuit of it.

Using numerous examples, the authors explain in detail the ways Market Profile can be used to identify what they refer to as "asymmetric opportunities". These are market set-ups where not only do the odds more favor a move in one particular direction, but the situation is such that a move in that direction is likely to be substantially larger than were the market to go the other way. Think of it as you would a trading system that has a win rate incess of 50% and a high average winner to average loser ratio. That's a pretty good combination!

This is a book that can make a huge difference in the way you look at the markets, and by extention, the way you trade, but only if you let it. The authors challenge quite a few elements of trading. Some readers may put up walls where that happens. The open-minded reader, though, will find themself thinking along completely new paths and gaining massive insights in to the way they see price action.

(For the record, years ago, when I was a professional analyst focusing on the futures market, I used Market Profile extensively and with considerable success. In the intervening years I fell away from it when I shifted market focus, but I'm now making a move back.)

Having read all the books on Market Profile, I have to say this is the most informative and best-written guide on the subject. I studied Market Profile when it first surfaced in the mid-1980s. In retrospect the problem I had in using the Profile was my focus on the single day time frame and my inability to detect the transistion from trending to bracketing markets. Dalton and co-authors provide a clear explanation of how markets change conditions and show how to use the profile to interpret market behavior in different time frames. The Market Profile remains the single best way to organize and interpret market action and this book is an excellent addition to the literature.

Trading is never easy and this isn't one of those books which gives you a system to beat the market. Instead, it shows you how to read the market, organize market information around the auction process, and interpret the actions of other traders. It provides a framework for making rational, informed trading decisions -- and that alone will put you head and shoulders above most speculative traders. This is one of the best, most honest trading books I've read in years.

The information in Markets in Profile is terrific - should not be missed by anyone interested in Market Profile and trading in general. I would've pasted a five star rating on it, but there are quite a few errors in the book that make it just a little tough to get through. I'm not talking about the spelling/typo stuff (though there are more than should be acceptable) - it's the mislabeled graphs and problems of that sort that are a little disappointing. The authors are sharp guys - the editors need to clean things up a bit to make sure their authors' credibilities aren't besmirched.

This is the most comprehensive, honest, insightful trading book I've read. It expands upon the Profile basics Dalton established in "Mind Over Markets" and provides a masterful interpretation of the causes behind market action. I will say, however, that "Markets in Profile" is best read by those with at least a rudimentary knowledge of markets and technical analysis.

This book helped me understand why the Market Profile has not been widely adopted by traders, investors, professional money mangers--it's just not an easy concept to fully grasp without serious study and practice. Everyone wants a quick fix. An easy answer. A black box that prints money. People are generally not prepared to take the time and effort to learn what is essentially an art. This book combines potent theory with real-world examples of how the Profile makes it possible to take advantage of what Dalton calls "asymmetric risk opportunities."

There is no hedge fund Holy Grail. Dalton makes it clear that the Profile is not some magical technical system; it's simply a means of organizing market activity so that it's possible to recognize archetypes early enough to adapt and capitalize. The Profile is like a code that when cracked gives you phenomenal insight into market behavior. This book is a primer on how to understand that code--and yourself in the bargain.

Context, context, context is one of Dalton's key themes in his new book "Markets in Profile". It is interesting that this new book "Markets in Profile" provides the needed context for Dalton's earlier book "Mind over Markets". In "Markets in Profile", Dalton displays great care in crafting a framework that shows how to leverage Market Profile to identify asymmetric opportunities (low risk high reward trades) which can lead to long term trading success. A must read!

Dalton has done an excellent job once again taking his first market profile book, Mind Over Markets, into greater detail. This book is geared towards traders with a basic foundation of market profile. Markets In Profile goes into depth in explaining different time frame buyers and sellers with volume analysis during brackets and trends. The reason the general public moves away from learning market profile is because market profile forces traders to think creatively. It is not a system that gives buy/sell signals. Most traders would rather follow than think on their own. This book is condensed with a lot of great insights and will a great addition to any traders library.

Trading literature offers many tips, but wisdom is in a short supply. This slender volume definitely adds its weight to the wisdom scale. Jim Dalton, assisted by two co-authors, shares with you a lifetime's experience in the markets.

The pleasure of reading this book begins even before you dip into the text. Dalton and his co-authors have a gift for choosing quotes to open every chapter. Here're just a few: You can manage risk, but not return / Discovery consists of seeing what everybody has seen and thinking what nobody has thought / The man who insists upon seeing with perfect clearness before he decides, never decides.

Dalton writes that the goal of a serious trader is to identify asymmetric opportunities. People are seldom rational, and one needs to recognize imbalances caused by irrational human behavior such as the herd instinct that pushes prices away from value. He notes that all financial markets are measured by time, price, and volume. Price is the auction's method of advertising opportunity. Time regulates each opportunity, and volume measures the degree of success of each auction. Various timeframes coexist and interact; if we lose sight of the larger context, we are liable to make substantial errors. Dalton advises readers to review each security using monthly, weekly, and daily bars.

Not all prices are equal and neither are all opportunities. Once the majority recognizes change, all asymmetric opportunity is lost. Very few individuals want to accept the risk of being first and being wrong. Being a contrarian is like committing social suicide, but the greatest market opportunities come when you feel alone.

The greatest risk of all is losing your objectivity. The greatest reward comes to those who recognize opportunity early. Dalton states: we do not forecast, we assess the risk of our positions. Opportunities, just like markets, are regulated by time. If you squander that time waiting for a confirmation, the consequences can be harsh.

To become a successful trader, perhaps the most important skill you must master is the ability to distinguish price from value. Fair value is defined by price levels that attract the greatest volume of trade. Dalton dismisses system sellers by asking a deadly question: what price would you pay for a mechanical system that actually worked over an extended period of time?

Dalton's book is peppered with trading advice, such as how to decide which breakouts are likely to start a new trend and which are likely to fail. He is constantly linking price action with volume and time, teaching you to play three-dimensional chess. It may sound complicated, but once you get his logic, it is actually much simpler than it seems.

You will notice that so far in this review I've made no reference to Market Profile - a method of market analysis invented by Dalton's former colleague at CBOT, J. Peter Steidlmayer. This is because while reading this book I realized that Market Profile grew out of a problem we no longer have. It was developed in the days when real-time volume figures were not available. As I write this, my large screen is flashing with real-time volume, updated tick by tick, while Force Index, my volume indicator, does as good a job helping analyze this data as Market Profile - and probably better. This does not detract one bit from the great value of this book. Its quality and wisdom tower above any individual market or a trading method.

I`m a scalper, and I used to trade with no previous day homework and just relying on my intuition. But since I hit a pretty huge drawdawn, I started to study and learn about, what's actually driving the market and why. This book gave me tons of useful ideas and strategies, improving my skills substantiously in actual trading. It might not be a book that teaches u how to make trillons of dollars, but I think it is essential for a trader who whants a constant result and equity curve. Strongly reccommended.