Establishing Context

The objective is not to predict direction. It is to determine where the market has recently accepted or rejected value, and where it is likely to make its next meaningful decision. Equally important: where is the market probably not going? Spend equal time on both. The second question is routinely underweighted.

Market Generated Information Is the Whole Game

The concept of Market Generated Information was developed in the 1980s by a trader named James F. Dalton, who built on the market profile work pioneered at the Chicago Board of Trade and turned it into a coherent way of reading what an auction is actually communicating about itself. The core insight was simple and durable: the market is constantly producing information about its own intentions through the act of trading, and that information is more honest than anything written about the market from the outside.

There is a temptation, especially early on, to go looking for context in places the market never put it: opinions, headlines, somebody else's chart with twelve indicators on it. None of that is information the market generated. It is information generated about the market, which is a different and much less reliable thing.

Market Generated Information, or MGI, is everything the auction itself has produced: where price traded, how much volume transacted at each price, where it opened, where it closed, and where it has repeatedly refused to go. The reason MGI matters so much is structural. It is the rawest and realest form of information available, because it requires no interpretation layer between the data and the decision. It is the market telling you, directly and without commentary, what has already happened. Everything in this chapter is an exercise in reading that information well, and everything in later chapters about inflection points, bias, and execution is built on top of it.

Before the Session Opens

By the time RTH begins, the market has already communicated a substantial amount through MGI. Prior sessions have left volume distributions, accepted levels, rejected zones, and directional footprints across higher timeframes. The pre-market process is the work of reading that communication systematically, then constructing conditional responses rather than predictions. The difference matters: predictions require being right. Conditional responses require having read the options correctly.

Where the Majority of Useful Context Actually Lives

It is tempting to build an enormous checklist of reference levels and call that "context." In practice, for the index and metals products this playbook is built around, the large majority of useful context comes from four places, and most pre-market preparation should weight them accordingly.

• Recent multi-day market behavior: where has price spent time, and where has it refused to, across the last several sessions?
• The most recent series of auctions: the last few completed daily ranges and how each one resolved relative to the one before it.
• The opening 30-minute range: the first formal negotiation of the session.
• The one-hour initial balance: the window in which the session's early intent usually becomes legible.

Everything else, weekly and monthly references, composite value areas, and the rest, adds resolution to this picture. None of it replaces it.

Stage 1: Structural Context

The starting point is the daily chart paired with a rolling five-day volume profile. The objective is simple: where has the market spent meaningful time and volume recently, and where has it refused to transact? Volume is the primary lens here, and it reveals two non-negotiable truths.

In a trending structure, volume builds directionally because insufficient opposing interest exists to slow the move. In a balanced structure, volume accumulates across a range in a D-shaped distribution. Those two conditions call for completely different session approaches. Treating a balanced market like a trending one is one of the most reliable ways to donate capital to someone who correctly identified the difference.

The reference levels worth tracking are not a random grab-bag. They are parallel expressions of the same idea applied across different timeframes, and reading them as a set is what gives them meaning. Each one is a piece of MGI whose weight is proportional to the timeframe it belongs to.

• Candlestick information, weighted by timeframeA single candle is a summary of the business done during its period, and its weight scales with that period. The information in a monthly candle carries more structural weight than the information in a five-minute one, because far more participants and far more volume went into producing it. Read every candle as a statement scaled to the timeframe it represents.
• SettlementsA settlement is the closing price at which a prior timeframe was forced to conclude its positioning and inventory. It is the moment volume gets "locked in" for that period. Because participants are forced to mark their books against it, the settlement of any timeframe (daily, weekly, monthly) becomes a reference the next period anchors to.
• OpensAn open is the first traded price of a given timeframe, and it carries importance relative to that timeframe because information is so often anchored to it. The annual, quarterly, monthly, weekly, and daily opens each function as a reference point participants measure value against for the duration of that period: are we above or below where this period began?
• 5-Day rolling profileA rolling five-day volume profile represents the last rolling week of activity. Because price is dynamic and the market is always in motion, a rolling window keeps the read current rather than letting it expire on an arbitrary calendar boundary. This is the primary intermediate-term structural reference.
• 4-Week rolling profileA rolling four-week profile provides a wider scope on the higher-timeframe narrative and context. It is where the week-over-week story becomes legible: how this week's value is positioned relative to the last several, and whether the broader auction is migrating in one direction or balancing.

Stage 2: Overnight Session Analysis, Read at a Discount

Once structural context is established, focus shifts to how the Globex session is interacting with that broader framework. For the products this playbook is built around, equity indexes and metals, the overnight session needs to be read through a specific lens: total Globex volume is typically a small fraction of total RTH participation. As a single unit of information, it is therefore lower-weighted. It is not something to act on directly so much as something to reference, because even at low volume it has already begun making decisions on behalf of the session, or pointedly declined to.

The cleanest way to understand why the overnight matters is the gap. When an index or its corresponding ETF opens away from where the prior RTH session settled, that gap is the visible record of a decision the overnight session made while most participants were not watching. The market has already repriced. The question RTH then has to answer is whether that overnight decision gets accepted or rejected once full volume arrives. An overnight session that drifts quietly back toward the prior settlement is telling you it has not committed to anything. An overnight session that holds a gap and builds value away from the prior close is telling you a decision has been made that RTH will now either confirm or unwind.

So the overnight is read not for conviction but for the decisions it reveals: where price has already chosen to go, where it has refused to go, and what that leaves open as unfinished business heading into the open. Those are the questions worth carrying into RTH, held at appropriately low confidence until real volume weighs in.

Stage 3: Real-Time Adaptation

The pre-market work is a hypothesis. Once the session begins, that hypothesis is tested against reality. The market either validates the prepared scenario or it doesn't. When it doesn't, the pre-market narrative does not override what is actually happening. Real-time evidence wins. Always. This is not a close call.

As the RTH session develops, you gain more and more information about which decisions have already been made and which are still open. Afternoon sessions in particular tend to resolve into one of two environments. The first is reversion: inventory has largely been set, and the market is unwilling to commit new capital, so price rotates around established value. The second is continuation: there is information, a catalyst, or some other dynamic actively influencing pricing, and in those cases the market is both willing and able to make new decisions and extend. Reading which of those two environments you are in is most of what afternoon trading requires.

The Questions Worth Asking Every Session

• Where has the market spent the most time and volume recently, and where has it repeatedly refused to go?
• Is current price operating within, above, or below the dominant value area?
• Where is the market probably not going, and what structural evidence supports that conclusion?