 Welcome back to the Trade Hacker Mindset. In this episode, I want to talk to you about how you react when the market changes. 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. Alright, so let's jump into this topic of how you react when the market changes. By the way, if you hear a little bit of background noise, I am driving right now, but I had a couple of thoughts that I wanted to just talk to my trade hackers about. So how do you react when the market changes? At the time of this recording, it is January 25th, 2022. And we are in the midst of what has currently been a little bit of a mini crash in the market. I think the S&P is off of its highs from late last year of about 12 percent. Nasdaq was as low at one point as 19 percent off. So definitely a little bit of correction territory as the media would call it. Now, what's the main culprit of this downside move in stocks? Well, number one, there is a lot of stocks that were way, way, way overpriced. Okay, so let's just start there. I mean, some of these multiples of revenue and sales were just astronomical. The price to earnings ratios were just out of control to begin with. Okay, so part of this is simply profit taking. Some of this is just the market correcting itself back to pricing levels and a lot of stocks of where they should actually be anyway. But the main kind of headlines that you're going to be seeing right now are, it's all about the Fed and it's all about inflation. Now, you've heard the term don't fight the Fed, right? Whatever the kind of the mood or the momentum or the tone of the Fed is can be kind of where the market goes in, you know, from a directional standpoint. Now, I don't necessarily follow that logic. However, you can't ignore the fact that for the last, gosh, I don't know how many years the Fed has been extremely, extremely dovish, meaning they have provided unheard of amounts of stimulus to the economy. They have continued to drop and keep the overnight bank rates at or near zero. Okay, for an extended period of time. And the reality is we knew that wasn't going to last forever. But when and how fast was that going to change? Well, we obviously are in a situation of where we are in hyperinflation. Meaning, and this is not based on government released data or anything like that. It's simply you go to the grocery store, you're paying a lot more for food. Anything that you go to buy, you are paying a significant premium on compared to what you were six months, 12 months, 18 months ago. So, you know, the consumers are feeling that for sure. And the Fed, while they were consistently saying that this inflation was in their words transitory, meaning temporary, they finally killed that word and decided they weren't going to use that anymore. And so that was part of it. And then in their next follow up meeting, they admitted that inflation was beyond the scope of what they had originally thought based on data that's coming out. Unemployment, CPI reports, all that all the stuff that they that they track and monitor. So they there has definitely been an overall shift in the in the in the tone of of the Fed and they and how they are reacting to this data. So previously, they were continuing to keep rates low, no interest rate increases. They were tapering their bond buybacks and all that stuff that's been going on for for years. Okay, so they're changing their whole shift and saying there may be interest rate hikes three, four, five different interest rate hikes in 2022. So this is a big change from what it's been. And so my question that I asked at the beginning, how do you react to market changes? And the reason I ask that is because with the significant drop that we've seen in the market just over the last few weeks, are you still trying to implement the same strategies or the same methodology in the market now as you were a month ago? Because if you are and if you're not if you're not adapting to the current market, then it's most likely causing you frustration. It's most likely it could be causing you pain in the form of losses. It could be causing a number number of issues in your trading because the shift has happened. Now, the FOMC comes out and meets tomorrow, which is on January 26th. That will be you'll be hearing this podcast after the fact. But here is my personal assumption of what's going to happen if the Fed comes out and they back off of their aggressive hawkish acceleration of interest rates and all that stuff. If they back off of that because of what's happened in the market and the market does rally, I would be very cautious about viewing that as the continuation of this massive bull run that we've been in. In fact, I'm taking the opposite approach. If we do see a little run up a little rally in stocks, I'm looking that as an opportunity to reload some shorts. I don't think that we're out of the woods yet. I think we're going to see some more downside. That's just a personal assumption based on my view of the markets at this point from a directional perspective. But what else has changed about the market? Not only has the market gone down, we've seen almost since the COVID crash that any little dip in the market could be bought because every time the market dipped just a little bit, it ripped back up to new all-time highs. It might dip down a little bit, but then it ripped back to new all-time highs. If you are using that same buy the dip strategy in this market, you're probably getting crushed right now because the dip has not bounced. The dip is still dipping and the dip can dip even longer. If that was your main strategy was buying the dip, which a lot of people had been doing, and a lot of people had been doing well doing that, you've got to change your methodology. You've got to adapt to the current marketplace. I would eventually say almost even the opposite. Instead of buying every dip, I think every rally right now, at least in the short term, could be looked at as a shorting opportunity. That's from a directional standpoint. By the way, we just did another live class on our navigation trend trading methodology. If you have not checked that out, make sure you do. It's so powerful. It will keep you on the right side of the market by just simply following the rules that we have laid out within the strategy course. With my navigation trend trading trades, not if I only avoided getting hurt in this big downturn, but I've cashed in significantly by simply just following the rules of the trend trading system. That's number one. Number two, not only has the market coming down, not only has that made you need to shift your mindset around directional trading, but what else happens when the market sells off? Well, implied volatility, if you're an options trader, implied volatility has gone through the roof. Stocks come down, fear is now, there's fear, there's uncertainty in the marketplace, and so implied volatility in a lot of stocks and the indices has literally gone through the roof. Previously, when we're just grinding higher, buying the depth of grinding higher, and implied volatility is relatively low, we had one strategy or one overall big picture mindset about trading the market. Now with implied volatility going through the roof, we've shifted what we're doing in with a lot of our trades, and we're selling more premium, because what happens when you sell premium when implied volatility is high? Well, implied volatility is mean reverting. So when it contracts, we're going to benefit from those premium selling type strategies. Now that could be iron ducks, that could be short strangles, that could be iron condors. There's a lot of different premium selling type strategies, they're shorting VXX using options and some different strategies that we utilize, but the point is not to talk about specific strategies on this podcast, the point is for you to have the mental tools and the mental awareness to be able to shift how you approach the market when the market has changed. And so if you have it, if you're still trying to force your same old trades, or if you got smoked on a position that you're in, and you're still holding that thing thinking, oh, but it always bounces back, it's always bounced back for me. Well, I'm not so sure it's going to bounce back so quickly this time. I'm not saying that the market is going to continue crashing to the downside, but we're certainly going to see a lot more two-sided action. And I don't think anytime soon you're going to see the stock indices ripping to new all-time highs. And so take a look at where your positions are. If you're underwater on some positions, I'm not telling you what to do with those positions, but if you're trying to hold on to those positions to make back what you've lost, you may also want to consider cutting those and re-establishing your new game plan for the rest of 2022. Because the quickest way, if you're underwater on some positions, the quickest way to make that money back may not be with that particular trade. The way to make that money back may be recalculating, re-evaluating, and kind of creating a new mindset, a new methodology to benefit in the current marketplace that could get you back to where you need to be quicker than trying to just hold on and hope that those losing positions that you held on to are going to come back. You see, the market is a very tricky animal. Just when you start to get comfortable in a strategy that you think, oh, this just keeps working over and over and over, it completely shifts into a market where that particular strategy will not work. And if you do not adapt to that shift in the market, then what works for you at one point and it doesn't work for you now is going to cause some serious anxiety, some serious frustration, and some serious losses in your account. So make sure you adjust if you want to be part of a community that helps with these kinds of situations. We have 16 different strategy classes that we implore at navigation trading. And if you want to understand what market environment to use certain strategies in, just go to community.navigationtrading.com. It's free to join. We do have a paid membership as well. We call our pro membership. But if you want to just check it out, go to the community, check it out, interact with some of our other members. It's a great community. All everybody is there to help each other become better traders. I hope to see you on the inside and I will see you in the next episode.