Monday, December 18, 2017

2 Indicators to Help Our Emotions | Trading Psychology

Can we use any indicators to help with our emotions?

Most traders use technical indicators to find trading opportunities, but can those same indicators be used to help your psychology?

In today’s psychology lesson, I’m going to introduce an effective strategy that uses indicators to help with our emotions.

But before I go into today’s lesson, I need to remind you that this psychology lesson is the most recent in a series of psychology videos that I publish every week, and these videos build on the topics we’ve already discussed, so if this is the first video you’re watching, you might want to go back to the beginning of this video series and start from the beginning to get the most value out of these lessons.

Here’s the link to watch from the beginning

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So…Can we use any indicators to help with our emotions?

Before I answer that question, I want to take a moment to remind you that a successful trading career is all about keeping a positive mindset, and a positive mindset is a direct result of aligning our expectations with reality.

Let me give you an example of how I’ve made this mistake in my own trading career…

One of the most common mistakes that I made while learning was trying to use a stop-loss that was too small for the market and timeframe that I was trading.

I would find a good entry pattern, take the trade, place my stop-loss, place my targets, but the volatility in the market was too much for my small stop-loss to hold, and I would get stopped-out of the trade just to watch the price reverse and go straight to my target!  Quite frustrating!

Another problem I ran into when I was learning was that I would find a good entry pattern, I would take the trade, place my target and watch the trade go in my direction, but miss my target by only a few ticks and come back to stop me out for a loss!

What’s happening in these examples?

In the first example, my stop-loss was too small for the amount of volatility in the market.  In the second example, my target was too large for the volatility.

What’s the take-away?  My trade-management strategy wasn’t aligned with the volatility in the market was trading, which caused me to get shaken-out of good trades too early, and missing targets on trades that were successful.

Have you ever had that experience before, if you have, you know it’s frustrating!

What does that experience do to your mindset?  Are you able to keep a positive mindset after a week of losing money like that?  If you’re like most people, probably not.

Most people would have a negative view of the market when they keep missing targets or getting shaken-out of profitable trades… saying “the market makers are out to get me” … “their running my stops!”

An experienced trader knows better… an experienced trader knows that the market isn’t out to get you; the market doesn’t know you exist… you just aren’t aligning your expectations with reality.

So, if we all agree that a successful trading career requires a positive mindset, can we also agree that our trading strategy, and possibly the tools we use in our strategy, could have a direct impact on the quality of our mindset? 

And in turn… could those tools help our level of success?  Yes, I definitely think so.

Technical Indicator for our Psychology?

So, what trading tools are available that would help us align our expectations, so that we can achieve a more positive mindset, and in turn, more positive results?

I can think of two technical indicators that I use every day, which help align my expectations, and they are volume and average true range.


Volume is a very simple tool, its measures the number of contracts traded at any given time of the day. 

Some people use volume on a per-candle basis, such as at the bottom of a chart, whereas other traders, like me, like to use the total volume at specific times during the day.

For example, one of the first things I do every morning when I open my trade room at 8am EST is look at the total volume count coming out of the overnight London trading session.

I started tracking the total volume count each morning and I created an average for each market I wanted to trade.

Once I know the average, then I can compare each new day with the overall average.

It’s pretty simple, I know for example, that Crude Oil should have around 125,000 contracts traded at 8:00am EST, and if it doesn’t, I know the market is waiting for something, and I then need to stay patient, or maybe not trade that market until tomorrow.

But if I come in at 8am EST and Crude Oil has traded over 200,000 contracts overnight, now I know that this market is reacting to something, and I need to be prepared for the US-session traders to enter the market on the next pullback because they won’t want to miss out on this opportunity.

Volume is a great example of a technical indicator that helps me align my expectations, so that I can maintain the positive mindset that’s needed for a successful career, but I have one indicator that’s even more important to me, and that’s the average true-range.

Average True Range

A number of years ago I learned how to use the Average-True-Range Indicator, also known as the ATR. 

The ATR is simple tool that measures volatility over a specific period of time, most traders use a 14-period ATR. 

I’ll put the link in the text below this video if you want to learn how this tool is calculated, but keeping it simple, ATR allows me to align my expectations with the volatility in the market at that specific time of the session.

Do you remember that example from earlier? 

Remember how my trades would get stopped-out too early, or I would miss my target?  Both of those problems came from not aligning my trade-management with the market’s volatility.

I can use the ATR indicator in two (2) ways to help prevent that mistake.

First, I can use ATR on a daily chart, which will tell me what the average day’s range has been over the last 14 days.

If Crude Oil, for example, has an average range of 125 ticks over the last 14 days, I know that I can look for wide targets up until we exceed 125 ticks.  If we see a situation where Crude Oil has moved 150ticks, then I want to start thinking about keeping those targets relatively tight.

Another way to use the ATR indicator is to apply it to your specific trading timeframe.
For example, I like to use a 1000-volume chart to trade Crude Oil, and I use the ATR indicator to tell me when the average range over the last 14 candlesticks exceeds 10 ticks.

I like to use a 10-tick stop-loss, so I can use the ATR indicator to tell me when the averages are too high, and I can use that information to avoid trading during times when the market is too volatile.

Remember, everyone has a personal tolerance for risk, if my comfort zone on Crude Oil is using a 10-tick stop, I want to use the ATR indicator to identify the times when I can safely trade that market. 

When times get too volatile, i.e., when the ATR is above 10, then I can sit-on-hands and wait for the market to come back within my comfort zone again.

We’ve covered a LOT in this psychology lesson, so let’s do a quick recap.

Today we were reminder that a successful trading career is all about keeping a positive mindset, and a positive mindset is a direct result of aligning our expectations with reality.

When we align our expectations, trading is easier, its more enjoyable, it’s more profitable, and it doesn’t feel like the market’s out to get us!

I talked about two technical indicators that I use every day, which help me align my expectations, and they are volume and average true range.

I use volume to create an average at 8am EST, and each morning, I compare that day’s volume with the average, which helps me get a finger on the pulse of the market personality coming out of London.  I can then align my expectations with the market much more effectively that way.

My favorite tool, however, is the average true range indicator, and I use this in two ways.

First, I use it on a daily chart to give me an idea of the average daily range for the past 14 days.  With that information, I know when I can be more aggressive with my targets, and when I need to be more conservative.

Second way to use average true range is to apply it to my trading timeframe, such as a 1000-volume chart. 

When I see the ATR exceed my personal risk tolerance, I chose to sit-on-hands so my stops don’t get “shaken-out” of good trades.

When the ATR is within my risk profile, then I know I can safely use a small stop-loss without the risk of getting whipped out of my trades.

I should also remind you that I teach all of this stuff every morning in my trade room, so check it out, I look forward to helping you align your expectations with a professional coach and a professional trading strategy that seeks to trade WITH the market, not against it, because that’s the only way you get long-term successful results.

Wrapping things up… I’ve taken too much of your valuable time…

I hope you found a ton of value in today’s trading psychology lesson…

…and I would love to hear from you about additional topics that you’re struggling with as traders.

Do me a favor…drop me a comment below this video with any topics you’d like to see me cover in my next psychology video…

…make sure to give me a thumbs-up if you found value, subscribe to the channel if you’re not already, and please don’t forget to share this video with a friend who can benefit from this information as well.

Guys…It doesn’t matter what market we trade, or the strategy we use, even the most experienced & successful traders battle with their emotions when there’s money on the line.

And don’t forget, you can find me every morning @ 8:00am EST working hard in my trade room with all of our members here at, I have a great free trial on the homepage of our website, I publish my Nightly Newsletter every evening on my blog before 8:00pm EST, and I’m excited to see you again soon on my next trading psychology lesson.

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