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JIM DALTON LIVE MARKETS SEMINAR CURRICULUM

CHICAGO OCTOBER 2 – 4, 2011

SECTION I:
A NEED TO DEFINE TRADING IN YOUR OWN TERMS

MY THOUGHTS REGARDING TRADING

TRADING IS AN ART, SO IS LEARNING

SECTION II:
WHAT IS YOUR TIMEFRAME

SECTION III:
YOUR TRADING TIMEFRAME VERSUS AWARENESS OF OTHER
TIMEFRAMES

SECTION IV:
REFERENCES

SECTION V:
INTUITION VERSUS MARKET-GENERATED INFORMATION

SECTION VI:
IMAGINATION

SECTION VII:
PREPARING FOR THE PIT SESSION OPENING

SECTION VIII: MARKET AWARENESS

SECTION IX: MONEYBALL ANALYTICS

SUGGESTED READING LIST

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SECTION I: A NEED TO DEFINE TRADING IN YOUR OWN

TERMS

MY THOUGHTS REGARDING TRADING

A. Many traders think they have to be in every trade rather than wait and pick their
spots and leverage the best risk tool they have available—something they can
control—trade location.

B. If you’re trying to be in every trade you might want to consider how you view
trading and the likely success of this mindset.

C. Trading is about change-most of us inherently dislike change.

D. Trading is a game, in game playing part of the strategy is about getting inside the
mind of your competitors.
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MY THOUGHTS REGARDING TRADING CONTINUED

E. Trading is more art than science; many are enamored by the thought of a systems
approach to trading. The idea of algorithms has invaded our brains.

F. Trading is very visual.

G. Decision fatigue does in many traders.

H. What didn’t happen is often far more important than what did occur.

I. Trading is about you.

J. Bad advice—Identify your style. Successful traders can trade in any environment.
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TRADING IS AN ART, SO IS LEARNING

Learn fundamentals, principles, parts of game. Over time 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. This process
continually cycles along as deeper layers of the art are soaked in.
—Josh Waitkzin, The Art of Learning

Practice does not make perfect; perfect practice is necessary.

Section I Reinforcement Articles:

Trading Education Article #25 The Learning Process

Example to show the similarity of acquiring any art-based skill.

Trading Education Article #13 What I Internalized on My Own I Still Use
1. Subtraction
2. Addition

Trading Education Article #29 I Remember When

Trading Education Article #6 Buying and Selling Tails and Trader Development
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SECTION II: WHAT IS YOUR TIMEFRAME

A. FLOOR TRADING-FROM FLOORS TO SCREEN BASED ELECTRONIC

HISTORY AND TRANSITION

COMPUTERS-ALGORITHMS
PERSONAL CHARACTERISTICS

B. DAY TRADERS
SCALPERS
REVERSION TO THE MEAN
MOMENTUM
PERSONAL CHARACTERISTICS

C. SHORT-TERM TRADERS
OVERNIGHT POSITIONS
SHORT-TERM TRENDS
3-5 DAYS-MAYBE SLIGHTLY LONGER DEPENDING UPON CONDITIONS
PERSONAL CHARACTERISTICS
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WHAT IS YOUR TIMEFRAME CONTINUED

D. INTERMEDIATE-TERM TRADERS

SWING OR POSITION TRADERS

WEEKS OR MONTHS
FUNDAMENTALS
PRIVATE INDEPENDENT INDIVIDUALS
MUTUAL FUNDS
PENSION FUNDS, ETC
CHARACTERISTICS OF INDIVIDUALS AND FIRMS MAKING DECISIONS
SIZE
FREQUENCY

E. LONG-TERM TRADERS/INVESTORS

MONTHS OR YEARS
ATTACHED TO POSITIONS
FUNDAMENTALS
PRIVATE INDEPENDENT INDIVIDUALS
MUTUAL FUNDS
ENDOWMENTS
FOUNDATIONS
CHARACTERISTICS OF INDIVIDUALS AND FIRMS MAKING DECISION
SIZE
FREQUENCY

Depending on your experience, you can initially start with day timeframe and a single
category labeled “other timeframe”. As you evolve in this process you can
incorporate finer distinctions amongst the other timeframes.
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DAY TIMEFRAME AND ALL OTHERS DAILY BAR

EXAMPLE

Chart from Trading Article #32 Timeframes: Out of the Abstract

Section II Reinforcement Articles:

Trading Education Article #6 Understanding Timeframe Through Example

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SECTION III: YOUR TRADING TIMEFRAME VERSUS

AWARENESS OF OTHER TIMEFRAMES
TOP DOWN BOTTOM UP—AWARENESS-STARTS WITH DAILY PREPARATION

MONTHLY BAR

1. Multiple month balance

2. Upside breakout-long or intermediate-term timeframes

3. New balance-trading grounds for day, short, and intermediate-term timeframes.

4. Downside breakout-long or intermediate-term timeframes.

5. Destination trade

6. Intermediate-term resurfaces
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WEEKLY BAR

1. Rotational-day and short-term timeframes

2. Trade location-intermediate-term

3. Outside week-subtle change occurring

4. Trading range extreme reference

4a. Upside breakout

5. One-timeframing
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DAILY BAR

1. Two-day balance

2. Weekly balance-upper trading range extreme-higher level reference

3. Inside bar

4. Upside breakout

5. Inside bar

6. Gap

7. Inside bar
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PROFILES—WHAT DOES STRUCTURE TELL US

1. Anomaly-settle
2. Anomaly
3. Poor high
4. Very Prominent POC or fairest price
5. Prominent POC
6. Anomalous POC
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PROFILE INSPECTION—WHAT ELSE ARE YOU LOOKING FOR

1. Elongation
2. Not elongated
3. Value and value area placement
4. Poor high and lows
5. Trade location within larger timeframes
6. Balance
7. Serial Profiles-like Christmas tree lights
8. Excess

Section III Reinforcement Articles:

Trading Education Article #3 Timeframe Tactics Guide: What a difference a

Timeframe Makes

Trading Education Article #1 Protecting Yourself

Trading Education Article #11 The Auction Process—Incorporating Multiple
Timeframes

Trading Education Article #15 How we View the Market Often Offers Far Different
Perspectives
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SECTION IV: REFERENCES

1. References represent levels that hold information
a. Some information is very short-term in nature
b. Some information is very long-term in nature

2. References are very visual

3. References are used to manage change
4. References identify trade location-trade location is our best tool for managing
risk
5. References are the footprints of the continuous two-way auction process
6. References may morph into either longer or shorter timeframe references
7. References are dynamic-they develop instantaneously as the auction develops

DYNAMIC REFERENCES—TWO EXAMPLES:

EXAMPLE ONE: MONITORING THE OPENING GAP AND VOLUME

From Trading Education Article #37, Where to get in: A Real

Time Trade Example
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EXAMPLE TWO: IDENTIFYING YOUR COMPETITORS’ BEHAVIOR

A DIFFERENT DYNAMIC REFERENCE—Observation of sellers coming in at numerous

times at approximately the same level. Traders will do what works until it doesn’t work any
longer. Reflect on what happens when price trades above that level and what this requires:

Imagination

Getting inside the head of your competitors

Understanding inventory conditions

Carrying information forward from earlier session(s)
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REFERENCES FOR PERSPECTIVE

I only used the daily bar since we are at the monthly highs—I try to keep everything as
simple as I can.

MARKET LOGIC—Central Banks intervened a few days back.

RULING REASON—Why we weren’t mechanical on the break; see long downward bar in
center of Profile—some accumulated experience here.
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LONGER TERM REFERENCES DRAWN ON SHORTER

TERM CHARTS

Without keeping the references in front of you it is hard to maintain a perspective when
the market heats up. See next graph.
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IDENTIFY LONGER-TERM REFERENCES

ON SHORTER-TERM CHARTS

When you have the references in front of you the destination trades become
very clear.

Your focus immediately goes from price to the bigger picture.

Without the references you are likely to remain glued to the price indicator.
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OTHER DAY TIMEFRAME PROFILE REFERENCES

1. Daily settle
2. Daily low-previous settle as we enter the following day.
3. Morning rally high following a gap lower selloff
4. Daily high or previous high
5. Gap
6. Daily excess high
7. Afternoon pullback low
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OTHER DAY TIMEFRAME PROFILE REFERENCES

1. The opening
2. ½ back
3. Anomalies
4. POC or
a. Prominent POC
b. Very Prominent POC
5. One timeframing
6. Balance
7. Breaking out of balance

Section IV Reinforcement Articles:

Trading Education Article #22 Destination trades

Trading Education Article #20 References

Trading Education Article #35 The Transition from Bracket to Trend

Trading Education Article #2 Structure

Trading Education Article #28 Reading Structure for Day Timeframe Trading

Trading Education Article #41 Spikes—How to Employ Them in Your Own Trading

Trading Education Article #7 Initial Balance

Trading Education Article #37 Where to Get In: A Real-Time Trading Example
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SECTION V: INTUITION VERSUS MARKET-GENERATED

INFORMATION
1. The good

2. The bad

EXAMPLES OF WHERE INTUITION FAILS US

1. White water rafting
2. Motorcycle

RULING REASON—this is different depending on the trading environment. On a day when

the short-term is in charge, ruling reason is going to be substantially different than the ruling
reason when longer timeframes are involved. Such a different mindset. This understanding
needs to be internalized.

∗ ONLY COMES WITH ACCUMULATED EXPERIENCE *

MY BIGGEST AND MOST FREQUENT TRADING ERRORS

Section V Reinforcement Articles:

Trading Education Article #34 We Have Met the Enemy and He is Us

Trading Education Article #40 Fading Trend Days

Trading Education Article #36 Trend Days

Trading Education Article #39 Price Versus Value

Trading Education Article #12 Separation and Divorce are Always Difficult

Trading Education Article #16 Does Your Brain Need Defragmenting
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SECTION VI: IMAGINATION

IMPACTS OUR PERSPECTIVE AND MORE SPECIFICALLY OUR TRADING STRATEGY

WHAT TIMEFRAME IS DOMINANT—3 HANDLE OR 20 HANDLE WINNER

IS THE MARKET IN OR OUT OF BALANCE

IS THERE EXCESS

HOW MUCH CONFIDENCE DOES THE MARKET HAVE-SHORT-TERM OR LONGER

TERM

WHAT LEVELS ARE LIKELY TO TRIGGER DYNAMIC CHANGE: WHERE MULTIPLE

TIMEFRAMES CONVERGE

OUR COMPETITORS-STRONGER HANDS VERSUS WEAKER HANDS

IS INVENTORY IN OR OUT OF BALANCE AND TO WHAT DEGREE

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IMAGINATION: S&P 500 FROM 9-21-201—BACKGROUND

Afternoon 9-21-market sells off following FOMC announcement

Selloff also coincides with negative headlines out of Europe

9-21-11 market sells off following FOMC announcement; selloff also coincides with
negative headlines out of Europe.

Settle
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IMAGINATION: S&P 500 9-22-2011 CONTINUED

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IMAGINATION: S&P 500 CLOSE 9-22-201 CONTINUED

MARKET IS SHORT FROM;

1. Afternoon of 9-21
2. Overnight from 9-21
3. During the day on 9-22
4. Late on 9-22 market continues to selloff—fairest price does migrate lower with price

Can you imagine the upside potential?

Successful trading is creative trading
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IMAGINATION: S&P 500 EXAMPLE—REVIEW

REVIEW

1. Short from afternoon of 9--21-likely short-term traders; longer-term

term sellers
don’t bang the market straight down. They sell, let the market settle, sell
again, etc.

2. Overnight selling was on lower volume and likely weaker hands short-term
short
traders. Longer-term
term sellers can’t get the liquidity they need in the overnight
ove
markets.

3. The laggard sellers were late on the afternoon of 9 9-22;

22; that is why they are
called laggards. The fairest price didn’t migrate lower because innovator
buyers were present.
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IMAGINATION: S&P 500 EXAMPLE

EXAMPLE—REVIEW
REVIEW

WITH ACCUMULATED KNOWLEDGE AND IMAGINATION YOU WILL:

1. Not get trapped short
2. Be able to take advantage of these wonderful opportunities
3. Be inside the head of your competitors
4. Realize that the ruling reason was a short inventory imbalance.

Section VI Reinforcement Articles:

Trading
rading Education Article #5 Knowing What to Look for

Trading
rading Education Article #9 Understanding the Importance of Two-s
sided Versus One-
sided Trade

Trading
rading Education Article #24 Day Timeframe Inventory Imbalances
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SECTION VII: PREPARING FOR THE PIT SESSION

OPENING

THE INITIAL LIST IS LONG; ONCE YOU INTERNALIZE THE INFORMATION

YOU WILL AUTOMATICALLY FOCUS ON WHAT IS RELEVANT.

1. Is the market in a long-term trend; if so is the trend early or late.

2. If in a long-term trend is the market tending or balancing.
3. If balancing, reflect on trade location
4. Is there an intermediate-term trend-intermediate-term trends follow a
long-term trend.
5. Is there a short-term trend-trade location relative to its beginning as
well as approaching significant references.
6. Is the market balanced with no short-term trend.
7. What does your analysis show from yesterday’s market.
a. Value area placement
b. Profile structure
c. Attempted direction-volume associated with attempted
direction.
d. Fairest price level-is it pronounced enough to favor revisiting.
a. Anomalies
8. Overnight trade
9. Scheduled new announcements
10. Does it appear that we will open in or out of balance
a. If in balance, is it likely to be closer to the extremes or to the
center.
b. Out of balance-gap opening
11. Have you printed out your daily bar and profiles with references clearly
marked.
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SECTION VII: PREPARING FOR THE PIT SESSION

OPENING NOTES

Section VII Reinforcement Articles:

Trading Education Article #21 Keeping the Market Profile in Perspective

Trading Education Article #23 Contrasting Symmetry

Trading Education Article #38 Where to Get In: A Real-Time Trading Example

Trading Education Article #17 A Week of Trading with Jim Part 1

Trading Education Article #18 A Week of Trading with Jim Part 2

Trading Education Article #19 A Week of Trading with Jim Part 3

Trading Education Article #27 A Week of Trading with Jim April 2011

Trading Education Article #31 A Bad Day in the Life of a Guru
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SECTION VIII: MARKET AWARENESS

EVERY TRADER, NO MATTER WHAT TIMEFRAME POSITION THEY ARE

ENTERING, IS A DAY TRADER THE DAY THEY ENTER THE MARKET

QUESTIONS TO ASK YOURSELF SO THAT YOU CAN BEGIN TO EVALUATE

WHAT WORKS FOR YOU

A. Am I placing the trade early in the trading session or later in the trading session

B. Is my trade consideration with or against:

1. Long-term trend
2. Intermediate-term trend

C. Day timeframe: Is my trade with or against the tone, trend, for day.

D. Is the current direction a short covering rally or long liquidation break—affects

your trade expectation and exit tactics.

E. Is the market in or out of balance.

F. Am I trading with or against developing value.

G. What is my trade location relative to:

1. The day timeframe
2. Longer timeframes
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SECTION VIII: MARKET AWARENESS NOTES

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SECTION IX: MONEYBALL ANALYTICS

Moneyball changed the game of baseball. It started with the Oakland Athletics when they lost
three key players to bigger moneyed teams like the Yankees. They began using different,
less conventional statistics; for example times on base, mapping the sweet spots of each
batter, etc.

SUGGESTED PERSONAL ANALYTICS

A. What percentage of my trades are terminated via stops

B. What is my success when I trade with the trend:

a. Long-term

b. Intermediate-term

c. Day timeframe trend

C. What is my success when I trade relative to day timeframe value

a. With developing value or against developing value

D. Trend day success

a. With the trend

b. Against the trend

E. Reversion to the mean versus breakout or go with trades

a. Success percentage with reversion to the mean trades and average

win loss.

b. Success percentage with breakout trades and average win loss.

F. Win loss percentage and win loss amount first half of day; second half.

Section IX Reinforcement Articles:

Trading Education Article #14 The Horses are at the Gate and There They Go!

Trading Education Article #10 Traders and Costco Shoppers

Trading Education Article #26 Stops

Trading Education Article #30 Resting Orders

Trading Education Article #33 Defense
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SECTION IX: MONEYBALL ANALYTICS NOTES

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SUGGESTED READING LIST

• The Black Swan, Nassim Nicholas Taleb

• Fooled by Randomness, Nassim Nicholas Taleb
• MonebBall, Michael Lewis

• The Art of Learning, Josh Waitzkin

• How to Think Like Einstein, Scott Thorpe
• Talent is Overrated, Geoff Colvin

• The Psychology of Trading, Brett Steenbarger

• Enhancing Trader Performance, Brett Steenbarger
• The Daily Trading Coach, Brett Steenbarger

• Blink, Malcolm Gladwell

• Outliers, Malcolm Gladwell
• The Tipping Point, Malcolm Gladwell
• What the Dog Saw, Malcolm Gladwell

• Mozart and the Fighter Pilot, Richard Restak, M.D.

• How Life Imitates Chess, Garry Kasparov
• Proust Was a Neuroscientist, Jonah Lehrer

• A Theory of Fun for Game Design, Ralph Koster

• Gut Feelings: The Intelligence of the Unconscious, Ger Gigerenzer