Jim Daltons Trading Principles to Live By in the New Year

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 markets 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

5. Structure allows us to see distribution patterns, for example:
a. P formations indicate short covering
b. b formations indicate liquidation breaks
c. 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.

d. 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.

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e. 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 Profiles shape is more symmetrical.

Size of Opportunities
6. No two opportunities are equal. Some opportunities are small while others are
very big.

a. The smallest opportunities occur when the market is within balance.

i. For the day trader remaining within or just slightly above or below
the previous days range suggests small opportunities. Wishful
thinking wont expand these opportunities.

ii. For the longer-term trader remaining within a trading range or

bracket represents smaller opportunities.

b. 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.

i. For the day trader the reference is the previous days range.
ii. For the longer-term trader the reference is the current bracket or
trading range or balance.

iii. 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
7. 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.

a. Unsuccessful traders constantly struggle with cognitive dissonance.

For example:

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i. They cant resist looking at the economic announcements. If the

announcement is positive they cant pull the trigger if the marketgenerated information is signaling a weak auction.

ii. Because they dont like the market on a longer-term basis they
cant go long for a day trade that is justified on market-generated
information.

iii. 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

8. Think in terms of odds. For example:
b. 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.

9. Earlier we wrote about big opportunities. A word about staying in good

trades:
An examplethe 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
10. No professional in any field practices their profession without constant
preparation. The hours of prep 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

11. You can control the risk you take; however, you have no say over the
markets returns. You do have the ability to learn how to monitor for
continuation. You control risk by:

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c. Place stops at a structural reference and never using an arbitrary

money stop.

d. Exiting a trade, whether a winner or a loser, if the odds for

continuation no longer appear to be in your favor.

e. Stops should seldom take you out of a trade. You should exit under
your own power. This is where your confidence comes from, how you
build confidence.

f. 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 is often stopped out of a winning trade.

g. Trailing stops should go from one structural reference to another, not

based simply on profit earned.

Psychology
12. 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.

13. 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.

14. The final sign of an emotionally maturing trader is a willingness to miss an

opportunity if you arent comfortable with the trade.

For those who are ready theres still time to participate in Jim Daltons 2015
Intensive. Receive Jim Daltons Signature Trades Worksheet and become a
JD Member when you enroll.
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