The Context

“..Excellence in any endeavor, be it carpentry, medicine, athletics or futures trading, is only achieved through a careful balance between the analytical and intuitive powers of your mind.

The key element that has long separated tremendously successful traders from all others is their intuitive understanding that time regulates all financial opportunities.

In 1984, J. Peter Steidlmayer formally introduced the Market Profile as a way to graphically depict the acceptance or rejection of price over time. For the first time, what had once been the domain of the intuitive trader was now accessible to all traders.
Mind over Markets is a blog about learninglearning the dynamics of markets through the organization of price, time and volume, in the light of market microstructure, and learning how to synthesize this information with our own intuition…”

(Adapted from the preface of the classic written by James F. Dalton et al.)

The Concept

“...Volatility is a much misunderstood market factor, but can be explained and understood using market logic. It exists to a greater or lesser extent in all markets. Each (market) continually produces a series of boom and bust excesses, vacillations which can be controlled or halted only by longer timeframe participants entering (shortening their timeframes, timeframe scaling down) or short timeframe participants lengthening their timeframe (timeframe scaling up). When there is diminished long timeframe influence (or when the market is trading only in one timeframe), market activity is very volatile. Thus, the volatility of a marketplace – the measure of the degree of vacillation between high and low (range) in a market – is a function of the mix of timeframe perspective of the participants: markets become very volatile when participants are increasingly trading in the short term, ( large-scale timeframe scaling up or down depending upon the respective timeframes) the nearest timeframe. In other words, the tendency for long timeframe participants to shorten their timeframe triggers increased volatility, because their ability to buffer the market is diminished.


Thus, the market is most volatile when the condition of the market dictates that there is only one timeframe (the dominant timeframe). In this instance, as dominant participants initiate positions in the market, (initiative activity) all participants seek to initiate in the same direction, (responsive activity aligns with initiative activity) either buying or selling, thereby causing wide, volatile price swings (also several and sudden Auction rotations within a given price bracket).

In early market development, in seeking to find the Initial Balance area, day timeframe traders (including day-traders and scalpers) move the market directionally for the purpose of arresting the momentum causing the directional impact. They do this to give the market time for orderly trade. They are trying to find other timeframe traders willing to respond to this excess, this market-created opportunity to further impede the directional impact temporarily. The response of the other timeframe trader will be sporadic throughout the remaining time period. Lacking any evidence of trade of this nature, the market continues to proceed, producing a much wider range in order to shut off this directional impact more severely (in this case the volumes would be, substantially lower than average).

This illustrates the second point: that the market uses timeframe control (also timeframe scaling) in order to buffer the excess, and failing this, the excess continues, increasing volatility. When all participants are trading in a single timeframe, usually all act the same way at the same time and tremendous volatility ensues.”

(From “Markets and Market Logic”, written by, J Peter Steidlemayer and Kevin Koy, printed by The Porcupine Press, Chicago, 1st Edition, 1986, pp 34 and 35.)