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

Dalton, James F.

Hardcover

ISBN 10: 0470039094 ISBN 13: 9780470039090

Verlag: Wiley, 2007

Inhaltsangabe

Markets in Profile explores the confluence of three disparate philosophical frameworks: the Market Profile, behavioral finance, and neuroeconomics in order to present a unified theory of how markets work. The Market Profile is an ever-evolving, multidimensional graphic that gives visual form to the market's continuing auction process, revealing the myriad underlying dynamics that influence market activity. Behavioral finance posits that investors are driven more by emotional factors and the subjective interpretation of minutia than by "rationality" when making investment decisions. And neuroeconomics is the study of how investor psychology permeates and affects the financial markets. Mr. Dalton explicates the ways in which irrational human behavior influences the market's natural auction process, creating frequently predictable market structure, which results in opportunities for investors to ameliorate risk. The book will improve investors ability to interpret change in markets, enabling better, more confident investment decisions.

Über diesen Titel

Über die Autorin bzw. den Autor

JAMES F. DALTON has been a pioneer in the popularization of the Market Profile, a unique method of identifying trading/investment opportunities. Most recently, Mr. Dalton was director of research for managed accounts at UBS Financial Services. He began his career in the investment industry as a broker with Merrill Lynch and Shearson Lehman.

ROBERT BEVAN DALTON is a freelance writer and creative director for a variety of agencies, organizations, and nonprofits in the great northwest.

ERIC T. JONES has observed markets and investors throughout his twenty-three years of developing investment products and leading investment manager research teams.

Von der hinteren Coverseite

Praise for MARKETS in PROFILE

"Good books teach, but the best books enlighten. Markets in Profile is much more than a lucid explanation of the Market Profile and its application; it is an enlightening perspective on auction markets and the principles underlying all trading, regardless of time frame. Clearly written with many practical examples, Markets in Profile moves seamlessly from trading how-to's to trading psychology and back again, emphasizing the trader's dual challenge of understanding markets and understanding self. In so doing, authors Dalton, Dalton, and Jones have produced a worthy successor to their classic Mind over Markets."
―Brett N. Steenbarger, PhD, author of The Psychology of Trading and Enhancing Trader Performance

"Markets in Profile is a brilliant, insightful work that should be required reading for any trader. Dalton, Dalton, and Jones will transform your trading technique through their unique knowledge of the markets and understanding of trading psychology."
―Martin Sheridan, commodities trader, NYMEX member

"This book provides a fresh approach to behavioral finance―ideas that I have used to great benefit."
―Gregory A. Ehret, Senior Managing Director, State Street Global Advisors

"Few people understand the dynamics of the auction process as well as Jim Dalton. Market Profile offers a graphic representation of this process and Markets in Profile illustrates Jim's mastery of it."
―Steve Dickey, Vice President of Market Data Products, Chicago Board of Trade

"Market data speak volumes and Jim Dalton has deciphered the code. In Markets in Profile, Jim shares his techniques of profitable trading in a most readable and entertaining format. Serious traders, both professional and amateur, should benefit from the application of Jim's volumetric approach to reading what investors are telling us through their collective buy-sell transactions."
―Walter Sall, professional investor

Aus dem Klappentext

Fifteen years since publishing Mind over Markets their seminal work on markets and investor behavior Dalton, Jones, and Dalton have greatly expanded their scope, delving deeply into the ways in which the auction process reveals the actions of all investor time frames. They believe that by understanding timeframe behavior through developing market structure, it is possible to identify asymmetric opportunities that can ameliorate risk and help ensure financial dominance.

This book is a bold call to action for all investors from day traders through the longest-term individual investors, to traditional asset managers and hedge funds that control trillions of dollars. It challenges serious traders, investors, and researchers to reach beyond price-based market analysis and traditional fundamental research for a more contextual approach . . . an approach that translates the principles of behavioral finance into actionable reality by examining the relationship between price, time, and volume.

The authors take a profoundly different approach toward the traditional separation between day, short-, intermediate-, and long-term investors, pointing out that even the longest-term professional investor is a day trader on the day they enter, exit, trim, or add to a position. Lead author Jim Dalton and coauthor Eric Jones having been heavily involved in selecting hedge funds and traditional managers for a leading Wall Street financial services firm can attest to the importance of each basis point of performance in a world where one quarter's results can trigger financial triumph or a quick exodus.

In May of 2006, two months before the book was to be delivered to the publisher, the U.S. stock market broke eight percent in a matter of days sending investors and the media into a tailspin. The authors saw this as an opportunity to demonstrate their theories in real-time, as opposed to cherry-picking historical events that supported their claims. The event unfolds in Chapter 6 and the authors offer sound advice and strategies on how to navigate market activity yet to unfold. The results are summarized in the Appendix, which was written after the book was submitted to the publisher. You be the judge.

Filled with in-depth insight and expert advice, Markets in Profile teaches you the market's basic auction process, redefines how to view and conduct research, separates the markets into different time frames, illustrates the importance of inventory imbalances, and, in sum, demystifies market behavior by showing you how to organize the market's auction process in a scientific, systematic way.

Auszug. © Genehmigter Nachdruck. Alle Rechte vorbehalten.

Markets in Profile

Profiting from the Auction ProcessBy James F. Dalton Robert Bovan Dalton Eric T. Jones

John Wiley & Sons

Copyright © 2007 John Wiley & Sons, Ltd
All right reserved.
ISBN: 978-0-470-03909-0

Chapter One

The Only Constant

It is not necessary to change. Survival is not mandatory. -W. Edwards Deming

My first car was a used '49 Chevy. We could pull it into the garage and change the plugs, set the timing, clean the carburetor and be on our way. Back then, it was relatively easy to understand engines and how to keep them running smoothly. Today, if someone asked me to explain the first thing about what's happening under the hood of my car, I wouldn't have a clue.

There's a parallel between that Chevy and my first excursion into the world of investing. When I became a stockbroker in the late sixties, my choices were pretty simple: common stocks, preferreds, a few warrants, limited over-the-counter options, U.S. government treasuries, municipals and corporate bonds, and cash. While there were mutual funds, they were extremely limited and many brokerage firms discouraged brokers from selling them to customers.

The financial markets have moved from simple to complex at a rate of change that is impossible to fully grasp. This accelerating complexity has been multiplied by the Internet explosion, global expansion, and myriad other factors, leaving individual traders and investors bewildered and grasping at narrow fragments of the larger picture, or subscribing to the beliefs of supposed experts who promise clarity and shelter from the information maelstrom. It's no wonder that the current financial atmosphere is one of continual change and uncertainty.

In his landmark book, The Structure of Scientific Revolutions (Chicago: University of Chicago Press, 1962), Thomas S. Kuhn examines the way change realigns the "received beliefs" of any given community; because a community's participants define themselves according to the ideas they share, they often take great pains to defend those ideas. In fact, it's not uncommon for this defensive posture to result in the active suppression of new theories that undermine reigning assumptions. Therefore research, Kuhn writes, is not about discovering new truths, but rather "a strenuous and devoted attempt" to force new data into accepted conceptual boxes.

In short, change threatens the very terms with which we identify who we are (and how we invest our money).

But history has proved that in all things stasis never lasts-eventually an anomaly arises that is so compelling it cannot be ignored or dismissed as a "radical theory." Inevitably, the anomaly unseats the norm, resulting in a paradigm shift in shared assumptions. These shifts, as Kuhn describes them, are nothing short of revolutionary.

Paradigm shifts force a community to reconstruct its foundation of belief. Facts are reevaluated. Data are examined through new lenses and, despite vehement resistance by those who refuse to let go of outdated ideas, the old paradigm is overthrown. A new community is established, and the "radical theories" are accepted as the new normative establishment.

The cycle of change begins again.

How important is change? Think about the many powerful institutions and intrepid individuals that once lead the fray and who are now long gone; those who recognize change early can take advantage of change, those who can't overturn their past beliefs get left behind. That pattern repeats itself endlessly in all human endeavors.

In The Tipping Point: How Little Things Can Make a Big Difference (Boston: Little, Brown, 2000), Malcolm Gladwell defined the way people react to change by classifying them on a spectrum:

innovators : early adopters : early majority : late majority : laggards

We are going to show you how to use market-generated information to identify and adapt to change before your competitors-once the majority recognizes that change is occurring, all assymetric opportunity is lost. This book challenges you to be an innovator, to overturn (change) many of the assumptions that now guide your perception of economic and market conditions. You may be faced with information that runs counter to the prevailing beliefs of those whom you have trusted for guidance. Daniel Kahneman said it best: "Resistance is the initial fate of all new paradigms. Often this resistance is strongest among the institutions responsible for teaching and upholding the status quo."

To begin, we address change in the financial markets from the broadest perspective, which is from the point of view of investors who operate in the longest timeframe. But it is important to note that this same process occurs for traders/investors of all timeframes-those who capitalize on five-minute price swings, day traders who make several daily decisions, short-term traders who hold positions for several days, intermediate-term traders who track bracket extremes, as well traders who hold their positions for several months or even years.

What we are addressing, across all timeframes, is how change occurs.

We believe that the financial markets-and therefore all participants, businesses, and industries dependent on the markets-are at the vortex of a truly significant change. Over the coming years, investors, traders, portfolio managers, financial advisors, pension consultants, and even academics will all have to pick their spot on the spectrum of change ... and win or lose because of it.

There is no single key driver behind the change we're experiencing. Rather, a series of developments-some connected and some not-over the past 30 years have created the evolution that is now underway. The balance of this chapter introduces these events and their implications on the financial markets and those who operate within them (traders, portfolio managers, advisors, etc.). To help you visualize the following discussion,

Figure 1.1 illustrates several key developments of recent market history in the context of the U.S. equity market.

THE CREATION OF ERISA

The first serious change in the modern financial services business took place in the early seventies, partly as a result of the U.S. bear market that culminated in October 1974. Leading to the trend's nadir, equity valuation had decreased by approximately 40 percent (see Figure 1.1), the bond market had dropped an equivalent amount, and there was an estimated 35 percent decline in purchasing power. It should come as no surprise that innovation flourished under these extreme conditions; change demands the surrender of security, and in 1974 the very notion of security was cast in doubt.

Not surprisingly, new government regulations designed to protect employees' hard-earned retirement funds followed closely on the heels of this cataclysmic plunge. Enter ERISA (Employee Retirement Income Security Act), enacted in 1974 and designed to protect employee pensions. While performance measurement had got under way in the 1960s, ERISA increased focus on return relative to risk, which jumpstarted a new era of corporate accountability.

While this new accountability was clearly needed, ERISA was concerned more with the process by which pension-investment decisions were made, rather than with the investments themselves, which had the effect of ushering in an industry that focused on asset allocation, manager selection, and performance evaluation....

Details zur Ausgabe

• Verlag: Wiley
• Erscheinungsdatum: 2007
• Sprache: Englisch
• ISBN 10: 0470039094
• ISBN 13: 9780470039090
• Einband: Gebundene Ausgabe
• Auflage: 1
• Anzahl der Seiten: 224
• Kontakt zum Hersteller: Wiley-VCH GmbH; product_safety@wiley.com; ; Boschstrasse 12; Weinheim; 69469; Deutschland