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I came across an article that talks about a way of thinking that has been around for 2,000 year and is used by some of the world’s brightest. While I don’t believe in ever blindly following someone because they are smart/successful, I do believe it is wise to at least listen to and consider what the person is saying. Given I’ve been coaching and guiding traders since 2013, I can say with full certainty that this “powerful way of thinking is not being put into motion, and it SHOULD BE! I’m just as guilty as anyone else for not using this way of thinking, so no judgements from me! I want to apply this “thinking strategy” to the world of trading so you can see the true building block of what all successful traders build from. Let’s get to it!


This is The Stock Trading Reality Podcast, episode 265.
This is The Stock Trading Reality Podcast, where you get to see the realistic side of a trader’s journey. Get inspired and stay motivated by everyday normal people, who are currently on their journey to trading success. And this is your host, he’s quite impressed with these liquid marker things, ClayTrader.
And you know what, I have quite a bit of data that supports I’m not the only person that’s apparently easily impressed these days. I say that kind of tongue in cheek but there have actually been quite a few comments, if you’re not familiar I do have a YouTube channel, and one of the things I pride myself on is I’ll read all the comments of videos, I reply to them, and within that, now I’m exaggerating here, I swear I’m getting comments all the time, wait how are you doing that Clay? Is that a certain magical type of chalkboard? Is that a chalkboard that you have to repaint every time? How is all things working?
Because people see me writing on a chalkboard with markers and I didn’t know this technology existed. I mean, think about it, we have 5G networks now and we have liquid chalk markers and it’s pretty fascinating but no, there’s nothing fancy going on. It’s just a marker that happens to be a chalkish substance and then you can erase it. But I am impressed by it, like I said, by the number of comments that I seem to have gotten ever since I switched over to it on the YouTube videos.
Many of you are impressed, too, a little confused by it. It’s good stuff, though, and I would highly recommend looking into them if you decide to go old school with the chalkboard again, which I have done. Use the whiteboard… Well, I started off on a chalkboard way back in 2013 when I started all of this. Then I went to the whiteboard, stayed with that for several years, and now I’m back to the chalkboard just because I kind of like that old school feeling, that old school grit that comes with it. But the liquid markers is a little new edition to chalkboard technology. So you should check them out if you want, if you do have a chalkboard, they’re pretty interesting things.
For this episode I am once again going solo. Came across an article that is… it nails it as far as why trading can be so hard. Why figuring it out, becoming consistent, is a very big challenge and why… I mean it is still my opinion but like I said earlier, I’ve been doing this since 2013 now, I’ve worked with lots of traders, and I’ve seen… And not necessarily even working with them where they decide to sign up for my program, but even just from the customer service aspect where you see people come in, they reveal their thoughts, they reveal their understanding and how they’re approaching the markets, and you try to help them out, you try to get them pointed in the right direction, I mean hence this podcast right here.
What we’re going to talk about, is not necessarily anything new, for those of you that have listened to many episodes I’m sure you’ve heard these little tidbits that I’m going to talk about pop up time and time again throughout the course of things. But this is more condensed into some terminology that has been around, I didn’t realize this before, I guess over 2000 years, but it’s more so a way of thinking that can hopefully help you build a better strategy.
But the point here being nothing necessarily new here, but something that a lot of people need to hear and I say that again based on the fact that I’ve worked with many traders and I have now many data points from the customer service point of view of people that are just approaching the markets in the very wrong way and they’re not thinking about this the right way. And it’s not their fault, I’m not saying they’re stupid for looking at the market this way, especially with the way things are set up from almost a sales and marketing perspective. I showed up thinking the exact same thing.
When you actually go through this process as the article maps out, you can really begin to boil down trading to what is referred to as the fundamental building blocks. Once you have those fundamentals in place you can begin to actually build something that’s going to work for you. Now, before I go any further, the person that is talking about this, he’s pretty controversial, maybe you already know who I’m talking about. However, whatever you believe about him, we all just need to agree that he is a very, very successful person and actually it’s not even necessarily him that has come up with this idea, because he’s quoting somebody, like I said, from 2000 years ago, and I would argue… I’m pretty sure you’ve heard of this person, too. In fact, he goes by a first name basis.
But that is, he’s the person that came up with this thought pattern and this way of approaching issues, but the point here being that this person worth billions of dollars, they’ve done very well, yes you can argue that they’re quite the showman and all that sort of stuff, but they’re very successful in life, they’re very brilliant, they’re very smart. So am I saying you blindly follow what anybody that’s worth a lot of money says to do? No, you never blindly follow anybody, no matter how successful they are.
But it’s at least a logical jump of a thought process to think, you know what they are very successful, maybe I should at least listen to what they’re saying, maybe I should at least consider. Remember, just because you listen to somebody doesn’t mean you go and follow and do what they say, but at least listening, considering on your own, that is always a wise thing to do.
So yes, maybe you already connected the dots on who this person is, but Elon Musk has, there was an article that I camera across. Not necessarily brand new but the whole idea here is I think it can really be applied to your trading… Well, not really. It should be, it needs to be applied to your trading because at the core this is what trading is all about and you need to break it down in this fashion and I want to, like I said, go through this thought process and apply it to what I see as a major problem with most people, and maybe this is something that you need to do within your trading. Or maybe you just need to hear it as kind of reassurance that you are indeed on the right pathway.
So the article comes from CNBC Make It, their section that’s just called Make It on their site. And the name of the article, “Elon Musk calls this a powerful, powerful way of thinking but is hard to do. Here’s how it works.” So picking up with the article here, from building PayPal and SpaceX to running one of the world’s most disruptive automobile companies, Elon Musk has a number of impressive accomplishments under his belt and he’s only 48 years old.
In a 2013 TED Talk, the billionaire entrepreneur revealed his “secret sauce”, quote unquote, to achieving extraordinary things. First principles thinking, a decision making strategy in which you boil things down to their fundamental truths and reasons up from there, as opposed to reasoning by analogy. So that’s the thing, first principles. That’s the name of the thought process, first principles thinking.
And as it says, the first principle thinking is it’s a decision making strategy. I’m assuming you can start to connect the dots already. Trading is a very decision based thing we do. If you want to have a good strategy you better be good at making the right decisions. So the connections are already coming very, very hopefully apparent.
Picking back up with the article here, of course Musk acknowledges that reason by analogy or quote unquote “Copying what other people do with slight variations is something we have to do throughout most our lives, otherwise mentally you wouldn’t be able to get through the day,” he said. Which is true. In many situations you do want to copy what other people are doing, with just slight, slight variances. And that is a normal way of thinking, that is actually a very productive way of thinking, that’s a very efficient way of thinking, to just copy somebody else, maybe tweak it slightly there, maybe tweak it slightly over there. But for the most part just copy what other people are doing.
You’re not stupid for doing that. In fact, I would say you are wise for doing that. You are very smart for doing that in most parts of life. But trading is not like most parts of life. Trading is a bizarre, bizarre thing people do. Myself included, and if you’ve never actually put any of your money on the line in a trading standpoint you probably can’t relate, but as I talked about time and time again, and will continue to talk about, you have so many voices in your head, you have no idea. It is a weird thing. We are all… We’re pretty much all psychopaths in the sense of we all truly do have voices in our head, it’s just a question of well how do you unlock the voices? How do you get the voices to come visit you?
And a very quick way to do that is to jump into the world of trading. My point is this, trading is not normal. Trading is not real life. It’s not real life in the sense of most parts of real life, most things we can do in real life, don’t apply to trading, and this is one of them, right here. And this is the first reason why trading is so difficult.
Because yes, most times as it’s called here, reasoning by analogy, meaning copying people, doing what other people are doing, yeah sure vary it up a little bit, add in some variances. That’s the right way to go, that’s the efficient way to go. Let’s just get it done, let’s… And not only let it done, let’s get it done in the most efficient way.
But not for trading. That’s not how it works. You can’t just go out there… Now, again, and I mentioned at the beginning, I get it. From the sales and marketing perspective, I have the strategy, do this. Well, of course, they are literally preying upon this reasoning by analogy. Those people know exactly what they’re doing. I’m not saying that those people don’t have a strategy that works for them but you are not them. So you’re just flat out copying them with little tiny variations. That’s not good enough. If it was good enough, then again, let’s use some common sense, let’s use some logic. Failure rates would not be at 90%. Some people say they’re at 95%. They wouldn’t be that high if all it was was, hey, you know what, reasoning by analogy, just copy what I do because I have it figured out, I make money, so here’s my exact strategy, just copy that. That is just not how it works.
But from a sales perspective, from a marketing perspective, I mean I’m a total idiot for doing this. Because I do sell training courses. Now, my training courses I don’t sell my quote unquote “strategy”. I sell tools, I sell tools that are going to help you build a strategy that works for you. I make sure you understand the tools that are available out there in their fullness, and when you understand the tools in their fullness, then you’re able to actually build something that works for you.
Well, geez Clay, that sounds like a lot more work compared to just copying somebody else. Yeah, it is more work. It does take more time. It does take effort on your part. And that’s not the greatest sales pitch. It’d be much smarter of me to just sit here and say, “Listen, I’ve got it all figured out, don’t worry about it, you’ll be ready to go in three weeks, three months, whatever number you can come with, just do this strategy and you’ll be good to go.” Analogy by reasoning. Not how it works.
So picking up the article here, so this is the headline here but the headline says… or a sub headline I should say, a framework for deconstructing complex problems. And yes, trading is a complex problem. Now, it’s not rocket science in the sense of how to understand how a stock goes up and down and if a stock goes up you can make money. Not complex in that sense but very complex in the sense of how it works from a mental perspective. How it works from a… All right, how can we overcome all these little mini challenges.
And that’s really what trading is. There’s a bunch of mini challenges and it’s just a matter of needing to overcome each of those. But the problem is when you have a bunch of mini ones it can add up. Now yes, they can be overcome but you’ve got to go into it with the right process and the right thought process in place. So the term first principles was coined more than 2000 years ago by the ancient Greek philosopher, maybe you’ve heard of this guy, Aristotle. Have you ever heard of Aristotle before?
I remember hearing about him in school and all that. So that’s why I say even if you can’t stand Elon Musk and think anything he says is total garbage, well like I said, Elon Musk is actually just taking this whole idea from Aristotle. I suppose people could have a… “No, I don’t like Aristotle either.” Okay, then in that case, I’m sorry, I guess I’m just not going to be able to deliver for you because both my sources here of somebody we should at least listen to, at least consider what they’re saying, I’ve come up empty. But hopefully you can agree that either one of these two people is relatively intelligent, is relatively worth at least listening to and considering.
So again, this first principles way of thinking like I said came from Aristotle, who believed that the best way to understand a subject is to break it down to its most fundamental principles. It’s the most fundamental principles. In a 2012 interview with Digg founder Kevin Rose, Musk explained how to apply the first principles method using the cost of batteries as an example.
So step one, and this is what you need to do with your trading, this is what you need to do really… especially if you’re brand new and just getting into it, some of this is going to sound bizarre, some of this is going to sound very weird, it’s going to sound very anti kind of, counterproductive, wait what? That doesn’t… But like you said we’ve got to break things down to the basics, break it down to the quote “most fundamental principles”.
So step one here is identify the problem and its common assumptions. So in this situation somebody could say battery packs are really expensive and that’s just the way they will always be. Historically, it has cost $600 per kilowatt hour, Musk said, referring to the quote unquote “common assumption about car batteries”. Therefore, he continued, most people would just accept that it’s not going to be much better than that in the future.
So what is the problem within trading? Well, the problem starts off with the common assumption, and the common assumption which I would say probably 99% of people think, is this. Well, trading is all about winning, trading is all about making money. That’s the point of trading, right? You trade to make money, that’s what you need to focus on, making money, and that’s where people launch from, is making money. That’s just not true. That’s not what trading is all about. That’s not what trading, at its most fundamental principle, cares about. It’s not about making money.
I get it, that could sound weird, if this is the first time you’ve heard that. Now, if you’re a long time listener maybe you know where I’m headed with all this but the problem is that most common assumption is hey, you know what, well really the problem is making consistent money. That’s the problem but one of the common assumptions is that it’s all about making money. Which is kind of almost circular logic here, which gets very, very muddy, but hey, welcome to the complex problem of trading. Welcome to why most people don’t succeed because like I said, the problem is making consistent money but the assumption is well it’s not about making money, though. Sounds like it’s contradictory but it’s not.
So that is the issue there. So let’s go on to step two. Break down the problem or break the problem down to its fundamental truths. So picking up here, this is the most difficult part and the key is to ask the right questions. By challenging the common assumptions, keep digging deeper and deeper until you are left with only the fundamental truths. With first principles, you say what are the material constituents of the batteries? What is the stock market value of the material constituents? It’s got cobalt, nickel, aluminum, carbon, some polymers for separation and a seal can, explained Musk.
Then he continued, you’d break down that on a material basis and say, “If we bought that on the London Metal Exchange, what would each of those things cost?” It’s like $80 per kilowatt hour. Now, let’s get this… this is not a battery podcast but hopefully you can see where he’s going. So in this situation you’ve got to challenge the common assumption, the assumption being it’s all about making money.
Well, I’m sitting here telling you that it’s not about making money. So the question would be okay, Clay, what is it about. Well, what it is about is being… Well, actually, let me take a step back and let me ask you this. So in the market, what are some things that you cannot control? I’ll go through a list here. You cannot control management decisions, you cannot control some sort of lawsuit. I mean it could be a frivolous lawsuit, it could be a legit lawsuit, you just can’t control that as a trader, right?
You cannot control what the Federal Reserve is going to do. You cannot control trade war policies, you just can’t control any of that stuff. You cannot control when a virus breaks out. You just can’t control that either. Out of your control. But think about it, is there anything you can control in your trading? There is. There is one. There’s literally one thing that you can control in your trading, and that is how much money do you lose? How much money could you potentially lose in a trade? Or in other words your risk? That is literally the only thing you can control.
And think about it, something else you can’t control, you actually can’t control how much money you make. In other words you can’t control how high a price goes. You can’t sit there and say, “Price, hey, price, that price stop going up, price. Price, stop going… Oh, okay, price. Oh, all right, price, you’re not going to stop going up. Oh, you’re still going to go up. Okay, okay.” Think about, that’s actually, that’s pretty awesome, that’s pretty amazing that you cannot control how much money you make in a trade but you can control your risk, you can control how much money you potentially lose.
So because of this very fundamental truth of the markets, like you said, this is probably the most fundamental truth that is out there is that the only thing you can control as a trader is your risk. Nothing else. You cannot control anything else, including how much money you make in a trade because it’s not like you can just say, “Stop going up, price.” So that is a fundamental proof. We are breaking it down to the absolute bare bones of things. What can you control within the market? Your risk. That’s it.
So therefore, it now makes sense to say okay, you know what, if the only thing we can control is our risk, it would be… Well, actually, I’m getting ahead of myself. So let’s just leave it there because right now we’re just, step two is just breaking down the problem to its most fundamental truth. And the most fundamental truth is there’s only one thing out there that we can control and it’s our risk.
So let’s just get on to step three because I’m already getting a little bit too far ahead of myself, but number three, use the fundamental truths to plot a new course. Fundamental truths are like building blocks. Once you gather them, you can use them to create an entirely new and innovative solution. With the batteries you just need to think of a clever way to take those materials and combine them into the shape of a battery cell, Musk said. Then you can have batteries that are much, much cheaper than anyone realizes.
So we have our fundamental truth, right? We have our fundamental building block. The building block being, hey, there’s only one thing you can truly control out there, your risk. How much do you potentially lose in a trade, right? You can have that even if something were to go totally haywire and drop straight to zero in a worst case scenario, you can still determine how much it will… I only want to lose, and I’m just making this number up, I only want to lose $500.
Okay, well then the best way from a fundamental risk perspective would be okay, well then only put $500 in, because in a worst case scenario you’ll lose $500. So like I said, literally we can control that, you can control how much you lose in a trade. So with that in place, that’s going to help plot a new course.
Now, you don’t have to… When I say create an entirely new, an innovative solution, luckily in trading you don’t have to go out there and reinvent the wheel, you don’t have to create some sort of innovation in terms of a new tool or a new anything. The tools exist, the tools are out there, and from that point of view now yes, you do need to build something that works for you, for your personal time schedule, for your personal risk tolerance. That part is true. But that doesn’t mean that you go out there and have to invent something that’s never been seen before.
For me, the common tool I use are technical charts and then level 2s. So those are the name of the two tools, they’ve been around for… I mean, technical charts, especially in particular candlesticks, which is a massive part of technical charts, candlestick analysis, the Japanese created that back in the 1700s. So that quote unquote “tool” has been around for 300 years, still going strong, still working.
But as far as how you use the tool, how you use those candlesticks and all that, in combination with the level 2s, well that’s like I said, that’s where you’re going to need to actually do some fine tuning on your part. But the idea here is okay, well you have those tools, we don’t need to reinvent the whole new wheel, but we’ve got to plot a new course. So what is the new course that you can start to build from with that building block.
The course is this. If you work from this framework, if you work from this foundation, it’s going to force you to start to focus on the things that matter. And the framework is this. How can I be a great loser? I realize that sounds very bizarre, that sounds very, like I said earlier, counterproductive. Wait, great loser? I’m here to win. I’m here to make money. But remember, you can’t control that. You can only control how much you lose, you can only control your risk.
So let’s figure out how to be great at controlling risk. Let’s be the best loser possible, because the only guarantee in the market is you’re going to be wrong sometimes. Warren Buffett’s wrong, Jeff Bezos has been wrong. Remember when Amazon tried to get in the phone business? Fail. Everybody’s been wrong. Bill Gates has been wrong, Elon Musk has been wrong. Everybody has been wrong. You will be wrong. You will think that a stock is going to go up and then it’s going to go down. That’s okay. That doesn’t make you a bad trader, that makes you a human being. So let’s just make sure that we’re really good at being wrong, let’s make sure we’re really good at being a great loser, or in other words having our risk under control, managing risk. Because when you manage risk, when you’re just a really great loser, well then you’re going to survive.
I don’t care about winning, literally a blind, drunk monkey who you then blindfold, even though he’s already blind in the first place, can win. You can hand him a dart, they could throw it, and they could still get a bullseye, they could still win. Winning is not impressive. I am not impressed by somebody that’s new and says, “Hey, I’m new, I just made all this money.” I always tell people when I [inaudible 00:24:51], “Hey, congratulations, now comes the hard part, hanging on to the wins.” Because hanging on to it is where most people give it back.
I mean, have you been there? I’ve been there. Where you’re making money, you’re making money, you’re making money, and then poof. Where did all that money go? Well, you made money because it really doesn’t take much skill to make money. You just throw your money into something, you might be right, you might have all the most terrible habits and still walk away with making money, which is the cruel part of the market. That’s what we like to call fool’s gold where you think you got it all figured out but you really don’t because you’re not a great loser, and then when you are actually wrong, because you’re not a great loser, you just gie everything back.
Whereas if you are a great loser, well then you know what? Yeah, you’ll give some of it back but you’re going to do it in a very risk conscientious way and do it in a manner that’s… Sure, it’s annoying, nobody likes to lose, but because you’re a great loser, because you’re focused on risk control, it’s not like you give your entire account away or anything even close to that. It’s all about risk management.
So when you focus on the idea of being a great loser, you’re going to force yourself to be focused on risk first and foremost. What is risk control? What is risk management? How do we determine risk? What is a logical risk? Is this a controlled risk? All those different variations you can do and you can answer with those tools like I said earlier, technical charts and level 2s. Now, level 2s’ maybe not for everybody, day trading I would definitely say they’re important.
Now, if you’re a swing trader and investment, then level 2s, that’s not going to be that much of an issue. But definitely technical charts. There are a fantastic, fantastic tool to answer all those questions about risk and risk management. Is it logical, is it controlled, all that sort of stuff. But when you start from that building block you can get bigger and bigger in terms of progress and it’s all going to be progress that, again, is being built from that fundamental truth which is what you need to do.
So to finish things up here as far as the article, so the next little subheader, a powerful, powerful way of thinking. Musk has referenced the value of first principle thinking several times. I think it’s important to view knowledge as sort of a semantic tree, he wrote in a 2015 Reddit AMA. Make sure you understand the fundamental principles, i.e. the trunk and big branches, before you get into the leaves and details or there’s nothing for them to hang on to.
That’s a great analogy. In this case, you know to go what are our trunk, what is the big branches? The trunk is be a great loser. The big branches are technical charts, level 2s, you’ve got to get those in place first. When it comes to technical charts, I see it all the time. Yes I know how to read a chart, I know what candlesticks are, I know what support and resistance levels are, and I know what the MACD is.
And that’s great, don’t get me wrong, you’re kind of there, but there’s… just because you can read a chart, and in many cases they’re still not even reading and understanding candlesticks properly and stuff like that, but even if let’s just make the assumption that you can read the chart. There is a huge difference between reading a technical chart and applying a technical chart. The main hiccup becomes, people are applying technical charts with a mindset of got to make money, it’s all about making money, let’s make some money, let’s grow my account.
Again, that’s not… Those people aren’t being illogical. It’s not like they’re irrational for thinking that way. Because that is, again, that’s a very common sense way to think, that’s a very logical way of thinking. But again, that’s why the markets are so difficult because doing the logical thing isn’t always necessarily the right thing. Whereas the big part of taking reading and applying a chart I’d you need to be applying it on that fundamental truth building block of risk, being a great loser.
So that’s what I mean by the leaves. People, way too often they want to start with the leaves, they want to start with the details. They want to start with all these little things that, again, I’m not calling those people stupid because it makes sense in a whole lot of spots to think you should start there, but you shouldn’t. Here’s the most common example I get all the time. Clay, I’m brand new, what’s the best broker for me? Clay, brand new, what’s the best platform?
That’s a leaf. That’s a tiny little branch. You shouldn’t be starting there. Why? For example, let’s say you go through, you get knowledge, you get understanding, and you realize oh wow, well for my personal situation, for my time schedule, for whatever you want to… for my personal risk tolerance, I feel most comfortable, and I’m just totally making this up, but for my work schedule, what I feel most comfortable with, forex training would actually be the best for me. Forex training.
So at that point what if I told you this person goes and then signs up for a broker that specializes in options trading? You would say, well that doesn’t make any sense. They determined that they want to do forex, they determined that forex would work best for them so why did they sign up for an options brokers? Exactly, right? That doesn’t make any sense.
My point is this, is you don’t know what sort of broker, you don’t know what sort of platform you need until you yourself know what you want to trade, what style you want to trade, how you need to trade it, how quickly or slowly. And after you have all those pieces in play, after you get that big trunk, after you get those bigger branches in place, then you can get down to those little leaves. But way too many people show up with a leaf or they have a faulty trunk saying, “You know what, yeah, I want to day trade stocks.” And they’re brand new. How do you know you want to day trade stocks? Where did that come from?
I get it, maybe you saw somebody day trading stocks but does that mean that’s what is actually going to work for you? Does that mean that it’s going to fit into your personal schedule? I mean if you have a full-time job, do you really think that you’re going to be able to day trade? Well, I’m going to use my phone. No. No, you’re not going to use your phone. If you think day trading stocks from your phone is a good idea you have some painful lessons coming to you. You have a faulty trunk, your branches are way out of whack. You are definitely not focused on being a great loser. If you think you can be a great loser day trading stocks from your phone, you can either heed my warning or not.
Now, when I say day trading I don’t mean buy now and then sell several hours from now. We’re still on the same day, I’m talking about day trading, okay I’m going to buy and then yeah, I’d like to sell pretty much as soon as possible. Now, I’m not going to say it’s impossible impossible, but remember that the framework of this is hey, you know, I’m brand new, I want to day trade, and yeah I get it, I do a full-time job but I’m able to check my phone every now and then so I want to day trade stocks using my phone.
No. Not when you’re brand new. Now, if you have good, solid experience, if you’re battle hardened, if you are a veteran then I can see some instances how maybe that could work. But under the context where I see it most, somebody that’s brand new, they are starting with the leaves. They are not starting where it actually matters. And where it actually matters is let’s get the trunk established first. And again, the trunk is built upon that building block of how can I be a great loser? Let’s focus on risk.
Picking back up with this same section here about a powerful way of thinking, in a 2014 commencement speech at the University of Southern California, he offered, he being Musk, a similar piece of advice. Don’t just follow the trend. It’s good to think in terms of the physics approach, the first principles he said. This is a good way to figure out if something really makes sense or if it’s just what everybody else is doing. He added, “It’s very hard to do. You can’t think that way about everything. It takes a lot of effort, but if you’re trying to do something new, it’s the best way to think, it’s a really powerful, powerful way of thinking.”
In this situation, like I said earlier, you’re not doing anything new in the sense of got to invent new tools, got to invent new ways of thinking. Nothing like that. Now, you are doing something new in the sense of you’ve got to figure out a strategy that’s going to fit perfectly for you. So that is new, because you are you, your schedule is you, your personal circumstances are you. So yeah, you’ve got to figure… it’s new in that sense, and that’s why you have to think in this way, but it’s also really not something new in the way of thinking, the thinking is the same. You’ve got to think and you’ve got to stay focused on principles that matter.
But it is very, very hard to do as he says, because especially when you’re, as I talk about earlier, bombarded by… I mean, goodness, I was just scrolling through my Facebook wall before I got here. The amount of ads I wish I would never have clicked on one of these ads for some other trading strategy out there that you get from, hey, follow my strategy, hey I got it figured out. You understand the ads, right? They come across as basically saying at core, I’ve got it figured out, I’m going to make your life easier because I have the strategy, just follow my strategy and you’re good to go. Hey, trade these types of stocks, trade like me, because I grew my account trading this exact way so follow this way and there you go.
Boy, doesn’t that sound nice? Just follow somebody else’s strategy, they turn some account from X amount to Y amount, and here’s how they did it, they traded these types of stocks or these types of cryptos or these types of options, and all right, well, I’m just going to do that. Well, no, that doesn’t… If only it were that easy. You can’t just simply copy other people. You need to figure out what works for you, you need to use the tools, start from that building block and then go from there.
And that’s why it is hard to do, because everything is rigged against you. And it’s very appealing because that is a very all right, well it doesn’t seem like it’s got much effort behind it. But that’s the idea, that’s the seller’s psychology, go… I’m not asking you to trust me about any of this. I would just ask you if you don’t trust me, that’s fine. I understand. But go research, go research selling psychology, marketing, the science of marketing. They are literally pulling the strings of let’s just make this sound as easy as possible.
I mean, that’s not anything really revolutionary, right, that’s just what the whole thing is, is get rich quick, sell the dream, all this but that’s why it’s hard to think in a way that dare I say forces you down the a pathway of needing to put in effort, needing to work hard. And that’s what this pathway does, is when I sit here and leader you’ve got to learn how to be a great loser, you’ve got to learn the tools, you’ve got to learn not only the tools properly but then you have to learn to apply the tools in the proper way.
Yeah, that’s difficult. That’s hard. It’s possible, it’s possible. I mean there’s all sorts of members I mean you’ve heard many members to this very own podcast, that are across the board, hence the point of this podcast, but there’s been plenty of people that are having great success and so it’s completely possible. And then the final subheader here, first principles reasoning can make your life better. First principles thinking isn’t just for building rockets or electric vehicles, it can be used to fix problems in your daily life, whether it’s related to personal relationships, work, finances, or anything else.
Too often we make major life decisions based on outdated or false information, but in a rapidly changing world historical truths and experience may not always work, which is why it’s sometimes necessary to take a step back and use the first principles approach to create a more customized and creative solution. In this situation that’s very true, especially because you have all these things changing. Especially in the world of technology and stocks.
Oh, this new tool is out, oh this new tool, oh look at this scanner, oh look at this software that will draw the trendline all for you. I mean there’s all sorts of things out there that are always coming out and that’s great. I’m not against innovation but for us as traders there are some fundamental truths, there are building blocks that no matter what technology comes out, no matter how things are done, I mean 50 years ago it was people all screaming on the New York Stock Exchange floor, and now it’s just ones and zeroes. It’s algorithms, it’s all code.
But way back 50 years ago, it was all about managing risk. Assuming people wanted to be successful. 50 years later it’s still at the core all about managing risk, controlling what you can control and being really good at what you can control and that being how much you lose in a trade. So you’ve got to always just stop, and I love that word, just take a step back. Take a step back, assess the situation, yes, things are always changing, yes tools are getting better, yes platforms are getting better, high speed internet, fantastic, that’s why I always find it fascinating when we have guests that were around pretty much before online trading where they had to…
If you wanted to get a technical chart it would show up in a book, and then you’d have to analyze… And now we sit here and we literally, thanks to technology, watch a chart “draw itself”, quote unquote, in real time. Minute by minute if you want. I mean, my chart provider I could go down to 30 second charts. I could watch the chart form every 30 seconds. It’s fascinating.
But at the core, what, that doesn’t change anything in the fact of yeah but I still need to be really good at being a great loser. So a great article and a very powerful way of thinking and this is how it needs to be applied to trading. And this will sound kind of arrogant but I say this is how it needs to be applied to trading, and that’s not my opinion, that truly is a fact. The fact of the matter is if you want to have success as trading you need to be focused on one thing. How do I be a great loser?
Then from there you build from that block and things will begin to take care of themselves. It’s not a smooth ride, it’s not an easy ride, yes it’s going to take effort on your part, but if you at least launch yourself from that reference point, then you’re going to be putting yourself on the pathway that matters most. I don’t care about your winning trades. Let’s see what happens when things go wrong. Let’s see what happens when you are wrong. Do you just hold and hope? See, that’s not a strategy, right?
Okay, well I’m going to buy hold and hope and wait for it to go back around. Yeah, that can happen in a lot of cases but all it takes is one case where that doesn’t play out and it’s gone. Or a huge amount of it is gone. Why? Because holding and hoping is not being a great loser. That’s called denial. Denial of you know what, I might be wrong. This thing might not ever go up. And that’s just one little example that I see all the time. And I used to do it.
I’ve got to still be careful of doing it, right? I mean that’s… All right, well, okay, well I just have to hope it goes back up. Okay, Clay, that’s not exactly being a great loser. Great losers, that’s called denial. So just one instance of many. But overall hopefully you’ve found something valuable on this but like I said, first principles way of thinking, you’ve got to deconstruct complex problems down to their most basic forms and then once you have that you turn those into building blocks.
So I’ll just leave it at this, get out there, start to focus on being a great loser. And then finally if you did enjoy the podcast, final few things here before we part ways. First off, make sure to subscribe, whether it be on iTunes or any of the other podcast players. That way you’re always notified when new episodes come up. And especially on iTunes, little things like this really go a long way, if you could leave us a rating, that’d be fantastic, or better yet a written review. I really appreciate that, that goes a long way and I thank you and advance for doing that.
If you’re listening at on the show notes page, there is a little chat thing there in the bottom right hand corner, so feel free to reach out, comments, questions, suggestions, any of that sort of stuff, I always love to hear when people talk to us through the live chat box and hey, you know what, I heard you on the podcast, I listen to the podcast, so I love it. I love to hear from listeners out there so please feel free to reach out, but if nothing else, especially like you said if you’re just listening on iTunes, if you can give us a five star rating preferably, there we go, there’s a word I’m searching for, or better yet leave a written review, I would really appreciate it. So thank you for hanging out and I look forward to seeing you back next week.
This has been The Stock Trading Reality Podcast. Thanks for taking the time to hang out. To learn more about Clay and the ClayTrader community, including the trading team, premium training and more, visit

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