 Welcome back to the Trade Hacker Mindset. In this episode, I want to talk to you about volatility of the markets and volatility of your emotions. Trading the markets can be difficult to master and seemingly just out of reach. Professional traders have a secret. Trading requires total mental and emotional control. It requires the Trade Hacker Mindset. All right, so let's jump into this topic of volatility in the markets and volatility in our emotions. So as we know, as humans, our emotions at times can be calm and logical and methodical. And other times, our emotions can be very volatile, unpredictable, and erratic, right? Well, the markets are simply a microcosm of traders' emotions. And it's very important to understand that to be a successful trader. Let's take, for example, day trading. If you're used to a slow-moving methodical market, and then all of a sudden volatility swings in and the moves start becoming a lot bigger, this can be extremely frustrating, right? It can hit your stop levels. It can create a situation where you take profits too early just to see the market continue to run in a massive way in your original direction. And the opposite holds true as well. If you are trading in a volatile market, and all of a sudden the volatility dries up, you're going to have your profit targets way far away, and price is just going to kind of chop in levels in a very narrow range. And you're going to feel frustrated because you're not booking those profits and enclosing those winning trades. And so what does this do to you as a trader? Well, as I mentioned, it causes frustration. You might say things like, wow, man, I'm following the exact rules, but it's still not working. I'm staying disciplined, but it's still not working. And so inevitably what a new trader does is they do one of two things. They start to increase size, to start to get the money back. They start to break their rules. They start to look for a new strategy. They start to change their strategy. They start to change their rules. And then it just turns into a spiral of negative things. Not only just lost capital, but also the mental distress that it puts on you and sets you back from getting to that area of consistency with your trading. So this can happen within the volatility of a similar market. It can also happen if you change from trading one market to the next. For example, trading small cap tech stocks is different than trading stocks that are big blue chip stocks that are part of the Dow. Or if you were to go from trading bonds to trading oil or equities to currencies, just changing markets, you have to be able to adjust your emotions. You have to be able to adjust your strategy and your profit targets and your stop limits and everything else to the market and the environment that you are trading. So my question to you is, do you understand the volatility of the market that you are trading right now? Okay, so let me give you a couple of different examples. If you're doing spread trading or premium selling, do you understand what the implied volatility levels are in the stocks or indices or the futures that you are selling premium on? Obviously, well, maybe not obviously, but as we know that selling premium when implied volatility is high is much more profitable than selling premium when implied volatility is low. So are you taking a strategy that's worked in one environment and trying to apply it in another environment? If you are trading directionally, do you understand the range of the markets? One of the things that we did when we created and developed our NTT strategy is, and this can work in any market that you're trading specifically directionally, but just getting to know the range of that market in general, and one of the components that we added to that was the average true range. It's an ATR indicators. It's typically available in almost any charting package, and you can place that on your chart, and we like to use the 10-day. If we're looking at a daily chart, we like to use the 10-day ATR, and that gives us an idea of the average range of the day over the last two weeks or the last 10 trading days. Or if you're trading lower time frames, let's say like we use it on a five-minute chart with our day trading as well, do you understand what the average range is in the bars that you're trading? And so it's adaptable to any timeframe, but it helps you gauge what the volatility is. If you're trading a five-minute timeframe, and things are very choppy and low range, and that ATR is low, and then all of a sudden things start to change, and the moves start to happen, you're gonna see that ATR automatically expand and give you an idea of the volatility of that market that you're trading. Now, how does this help you? It's gonna, the way that we use it is it allows you to take your profits based on moves in that average true range. So it's going to, if you're in a volatile market, it's gonna allow you to have your profit targets further away, you're gonna be able to go for more profits, and at the same time, your exit points on the losing side, your stops, it's gonna allow you to create your stops further away as well, to give that price more breathing room, to give that price more room to roam to either hit your profit or to hit your stop. Because if you try to use a percentage or a dollar amount, and you try to translate that, like I said, from a small cap, you know, volatile small cap tech stock to a Dow blue chip stock, it's not gonna work the same. You have to understand the volatility of the market that you are actually trading and in the timeframe that you are trading it. And the way that you take profits and the way that you, you know, exit losing trades has to be dynamic, and that's what the average true range does for you. Remember, we always have to adjust our trading to the market environment. If you try to force your system, or if you try to force your trades on the market, the market is always going to end up winning. So that's one way to gauge the volatility in the market or the timeframe that you're trading. In a past episode, we talked about keeping a mindset journal. So we have to understand the volatility of the market, but we also have to understand the volatility of our own emotions or mood. Now, unfortunately, we can't just click on and bring up an indicator of an average true range of our emotions. I wish we could, but unfortunately, I don't think that quite exists. Maybe it will one day, but it's not here yet. And so how do we gauge our emotions from a volatility level? Well, that's what the mindset journal's all about. That's why you have to track that because then you can start to get an idea of the level of your emotions and how you're thinking and feeling in different situations. Now, how can you use that in your trading? Well, a couple of ways. One, if you are emotionally charged up, whether that's in a good way, you're super excited, or in a bad way, you're pissed off, you just had an argument with somebody. You're sad about something that just happened to you. Whatever it is, if your emotions in any way are outside of the range of where they should be, you probably should not be trading at that moment. Okay, when we trade and when we need to have our focus on the process and our methodology and the flow of the markets, and we have all these other emotions and things going on inside of our body, inside of our mind, that's going to create a situation where we make decisions in our trading, even on a subconscious level, that we shouldn't be making. When we are trading, we want our average true range of our emotions to be, if not zero, we want them to be, we want it to be very low so that all we're focusing on is the flow of the market, on our process of trading, and not any other outside distractions. Also, I've seen a lot of traders where they will let the volatility of the market affect their mood. So in other words, a lot of times it's when the markets are moving, air quotes, normal, some traders feel good about themselves. They feel in sync with everything. But when something goes outside of the normal range, it creates emotional anxiety inside of that trader. Or, probably the biggest factor when it comes to the markets, taking control of your emotions is a situation where if you have a losing day, all of a sudden you're in a bad mood, okay? You've gotta be self-aware of these situations and you've gotta address them in a way so that because you cannot let the markets control your emotions. If you let the markets control your emotions, it's going to have a negative impact on your profitability and a negative impact on your trading overall. So just remember, the markets are emotional. The markets can be erratic. The markets can be irrational and that's okay. We can still make money from the markets. We cannot control the emotions of the market. We can only deal with our own emotions and that's what we have to be able to control. I hope this is helpful. If you wanna be part of a trading community with like-minded traders, just go to community.navigationtrading.com. It's free to join. There's hundreds of traders interacting on a daily basis. Not only about mindset stuff but sharing trade ideas with the sole purpose of helping each other become better traders. I look forward to seeing you on the inside and we'll see you in the next episode.