An Important Idea: Mind Over Markets

Brett N. Steenbarger, Ph.D.

www.brettsteenbarger.com

The book Mind Over Markets by James Dalton, Eric Jones, and Robert Dalton is a classic describing auction theory and the interpretation of the Market Profile. Below is a very important idea from the text:

“Volume is the truest and most reliable indicator of the market’s ability to facilitate trade. Even in a trending market, if volume is decreasing, then the likelihood that the trend will continue much longer is in question. A market that is not facilitating trade will not survive for long.

All markets seek to trade at price levels that maximize volume. If a market is not facilitating trade at a given price level, it will move to a new level that will better facilitate trade. Thus, if price movement is relatively static and volume continues to decline, the chances are great that the market will break-out of that region in search of new activity.” (p. 137).

In a trending market, higher or lower prices are facilitating trade. In a bracketing market, price extremes fail to attract participants and do not facilitate trade. The idea of markets seeking volume tells you that price movements will not end until a broad value consensus is attained.

Brett N. Steenbarger, Ph.D. is Director of Trader Development for Kingstree Trading, LLC in Chicago and Clinical Associate Professor of Psychiatry and Behavioral Sciences at SUNY Upstate Medical University in Syracuse, NY. He is also an active trader and writes occasional feature articles on market psychology for a variety of publications. The author of The Psychology of Trading (Wiley; January, 2003), Dr. Steenbarger has published over 50 peer-reviewed articles and book chapters on short-term approaches to behavioral change. His new, co-edited book The Art and Science of Brief Therapy is a core curricular text in psychiatry training programs. Many of Dr. Steenbarger’s articles and trading strategies are archived on his website, www.brettsteenbarger.com