Transcript

Hey, it’s Clay, and real quick, before you get to the episode, I want to talk about something that I get asked all the time. Clay, what broker do you suggest? What platform is the best one out there? While that’s always subjective, one thing that I can say is as somebody that loves technical charts and as a technical trader needs quality charts so that I can make good decisions, the one aspect that I would definitely say matters to me and should matter to you, especially, like I said, if you do choose to be a technical trader is a quality platform that gives you good visually appealing charts. So that’s why I always recommend WeBull to people because they are a situation where not only are they very budget friendly, meaning there’s no commissions, there’s no fees, and that’s for both options and stocks.

So if you’re somebody with a smaller account and really is commissioned conscientious, and you don’t want to be paying and giving away all your gains with fees, then WeBull, like I said, offers $0 commissions. But they also have really quality charts, which is important for the reasons, like I said, I discussed. But if you are curious and seeing the platform, seeing how it behaves, seeing how it all looks, then I’d encourage you to go to claytrader.com/webull. So again, claytrader.com/webull. That way, you can see how they behave. Now, maybe for your eye, you’re not necessarily going to like what they see, and that’s okay. But I think they offer some very, very quality technical charts. It’s a nice platform, very customizable.

But again, if you’re curious, and if you’re out there wondering, maybe looking to change from a broker or a platform that you’re not happy with, for whatever reason, again, consider WeBull, and again, claytrader.com/webull. So W-E and then Bull, WeBull. So like I said, then I have a little video review there that you can check things out. So like I said, check out WeBull. I think you’ll like what you see there if you like the technical charts. So let’s now move on to the actual episode. This is The Stock Trading Reality Podcast, episode 290.

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 every day normal people who are currently on their journey to trading success. This is your host. He really is believing the ability to take criticism is the key to success in life. Oh well, in that case, I was going to tell you, you remember last week’s episode? Yeah. At the beginning there? What? Oh, not now. ClayTrader.

Now, it’s not like I have a ton of experience in life. I mean, I still feel young. But it’s not like I’m some teenager anymore or anything like that. But the more experience I’ve gone through, the more business I’ve built and just life in general. You got to be able to take criticism, and I think that is the key to success in life. I mean, if there is one thing I think that I got pushed into a corner and said, “Clay, what’s that one thing? What’s the key to success in life?” I think it would be you just got to have the ability to take criticism. Yeah, it’s not always easy. Yeah, it’s not always pleasant.

But if you can listen to somebody and truly listen, there can be some nuggets of gold. There can be, to be quite Frank, to be quite blunt, money-making opportunities. I mean, that’s really how claytrader.com has been built from the get-go. Started off with one class and was the class perfect. No. There are some criticisms. Not in the sense of, “Clay, you’re terrible.” But, “Hey, Clay. That was good.” I learned. But what about that? What about that?

It would be great if you could have added in, fill in the blank, and not to Pat myself on the back, but this is why in reflection, I would say the ability to take criticism can be very helpful, can help you be successful, or like I said, to be just brutally blunt can help you make more money. I listened to that criticism, and then “Well, okay. Let me do a class like this. Okay. Let me add in that class.” That’s how my training program was ultimately built over the years, was listening to constructive criticism from fellow members, many of which are still around, have been on the podcast multiple times, and those people, again, now, of course, it’s got to be constructive criticism, but there is value in it.

Again, is it easy? No, because for me it’s, “Well, but I spent a lot of time and effort, a lot of time and effort in that class. But you’re saying this, that, and the other could have made it better? Well, you’re just a hater.” No. Like I said, not easy. But if you take that sort of criticism, you can help catapult that to many different other areas of life and help you be successful. So that’s my thought on that, and maybe you won’t believe this. Maybe you think this is all staged, but if you do want to believe me, these fun facts, I just put a list of them, and then I just do them as they come down the list, and this one happened to be on one of these solo episodes, and it really does fit nicely into the topic here that I’m going to be talking about in terms of criticism and being able to take it and really having the source of criticism.

But we’ll shelf that for now and get into this topic, which I found fascinating and really kind of all these scientific type episodes that I’ve been doing, which thank you very much for a feedback. I know many of you enjoy them. But after you read about them, research them, and learn, you kind of just think, “Wait, how did I not just realize that in the first place?” This is not difficult to see. Did people really need to actually research and write a bunch of experiences… not experiences, experiments, excuse me, to realize this? How do people not just know? Isn’t this common sense?

Once again, we have a situation like this, where yeah, upon reflection, it’s kind of just like, “Yeah. How was I not aware of that, to begin with?” But I will also say… Maybe I should have said this right from the get-go. But I guess we’re only a few minutes in. If you really want the best full effect in terms of this, I would encourage you to listen to episode 280 of the podcast. That one is called The Science of (Mental) Fool’s Gold. That one is really kind of the overarching umbrella to what’s going on here, because this science, from the world of psychology, the way our brains are wired, it’s actually a good thing, and it makes sense why it’s a good thing.

But under the wrong circumstances, it actually will work against you, as I want to talk about, and portray this from the perspective of a trader. But again, it’s all under the assumption of, well, what umbrella are you operating under? The reason why it’s very dangerous, if it’s not the right umbrella, especially when trading again is talked about in episode 280. As a quick kind of recap of that one, like I said, if you want the best effect, I would encourage you to go listen to that one. But that’s where I talked about the Dunning–Kruger effect, which basically is, from the world of psychology, the way of explaining it and saying, “Hey when you don’t know what you don’t know, you’re going to have many problems, many of those problems being the ability to analyze the learning lesson, meaning if you go through an experience, can you actually analyze and walk away from that experience with the proper learning lessons?”

The Dunning-Kruger Effect says, “Well no, you can’t.” Because when you don’t know what you don’t know, one of those things you don’t know is, what should be the actual learning lesson? What should I have actually learned from that experience? You’re not going to be able to do that when you don’t know what you don’t know. So in other words, it’s very hard to make progress. It’s very hard to actually progress in the right direction because of it. But it’s very easy to build false hope. It’s very easy to build again, fool’s gold, where you think you’re getting something figured out. But in all actuality, because you don’t know what you don’t know, you’re just reinforcing bad habits that are eventually going to come up and bite you.

I mean, we’ve all been there as traders, I would like to think, where you’re feeling good, you’re feeling good, you’re feeling good, and boom, wow, I just lost all my profits, or I just lost a significant amount of my profits. Well, I guess what I was doing didn’t actually turn out to be the right thing of what I should have been doing. It was working, but now, all of a sudden, Kaboom, it’s not. That’s also where I talk about one of the savage parts about the market and why I think training is so difficult is because the market actually rewards bad behavior, meaning if you touch a stove, a hot stove, that is, you will not be rewarded. You will be burned every single time.

So it’s a very, very quick way to learn. Don’t touch a hot stove. But in the market, it’s not that way. The market is a hot stove. But the problem is sometimes the hot stove just doesn’t decide to burn you. Not only does it not decide to burn you. It decides to reward you. Of course, in the market, rewarding you, meaning giving you money. Wow. I just made a profit on that trade, on that investment. But again, it’s rewarding bad behaviors. You still touched the hot stove. That’s not a good behavior. But you were rewarded for it. So why would you not think that, “Hey, that’s a good behavior. I touched that thing, and not only did nothing bad happen, I actually made money. So I’m going to keep on touching it.”

Then eventually, yeah, you get burned really, really bad. So that’s what the Dunning-Kruger effect is, basically at the core. When you don’t know what you don’t know, well, it’s hard to learn. It’s hard to progress. So just keep that in mind for now, and we’ll put that off to the side, because again, it’s all about what umbrella are you operating underneath, which is what really makes this area in psychology very, very savage.

I mean, I laugh because it’s brilliant. I mean, it makes total sense why our brains are wired this way. But wow, it’s so counterproductive if it’s operating, if it’s being deployed under the wrong circumstances, under the wrong umbrella. So what we’re going to be talking about is called the near-miss effect, so the near-miss effect. As always, I would encourage you to go do more research on it. I am not a PhD in psychology. I’m just a normal person that’s done some research, but I’m sure that I have the Dunning-Kruger effect affecting me with my full understanding of the near-miss effect.

But I will also say I’ve been working with… If you’re not very familiar with the podcast or just my site and community as a whole, been around since 2013. So I’ve worked with lots of traders. I’ve had lots of customer service experiences with people, and I will very well say that the near miss effect is very real through my experience. I think when I get through it, you’ll probably be able to relate to it, or you’ll probably be like, “Oh, yeah. I can see why, yeah, maybe I understand every little bit of a scientific studies and evidence.”

But yeah. From a general rule of thumb perspective, that makes total sense. So I’m going to go through it. First off, what I want to first address here is why it actually exists. So the near-miss effect is actually a good thing as far as why it exists in our brains, why are brains wired this way? So from one paper out there, and this is just called from wired.com, The Near-Miss Effect. It goes through some things, but I’m skipping down here because I want to set up the context first and then go through the two different “umbrellas”, the two different environments that you could be operating underneath.

So in this situation, the article starts off by saying, “Why would the mammalian brain be designed this way?” Now, that would be our brain, the mammalian brain designed this way. Again, because I’m skipping around the article, “this way” is designed with the near-miss effect. The near-miss effect is this. One answer is we didn’t evolve for Vegas. Rather, near misses help us stay motivated when engaging page in activities that require actual skill and not dumb luck. Let’s say we’re learning to play basketball. At first, our shots are going to be all over the place, a seemingly random distribution of bricks and air balls.

Yet, as we slowly get better, those shots will get closer to the rim. A few might even go in, which is pretty throwing. The purpose of near misses then is to keep us motivated while we slowly improve our form. If we only got excited by makes, we’d quickly give up, which is why the brain also needs a mechanism to register progress. So in other words, we need to have this desire to keep going. We need to be motivated to keep going. That is where the near miss is a good thing. I like the analogy with basketball.

You know what? The only way that we were pleased was to see it go in. Think about how quickly you would quit. First shot, I missed. Gone, gone. No. Impossible. Or maybe the first three or four shots that you miss them all. Gone. Nope, and you’re done. You just move on from it. That’s not very good from just a life perspective. If you’re going to give up that easily, not a good thing, right? You don’t want to… I mean, you want to be realistic, but you don’t want to be just straight up a pessimist and be like, “Gone.”

But you shoot one, and let’s say it rattles around. You’re like, “Oh, that was close. Let me try again.” You shoot, blah, blah, blah. Oh, wow. Oh, man. I just missed it. Well, what are you going to want to do? Well, I just missed it means, you know what? Well, I was actually really close though. I can get a little bit closer. I mean, it was just a near miss. I just missed it. Oh, but let’s try again. Oh, it was so close. All right. All right. I’m getting better though. It’s this fuel that’s feeding us, which is a good thing. It’s making us want to keep on going. It’s forcing us. It’s helping us. It’s motivating. It’s driving, whatever word you can think of.

I mean, have you ever been there where you’re traveling? Oh, yeah. Oh, it was so close. After that feeling, usually, “I’m done.” No. Of course. You’re like, “Well, let’s go again. That was so close. Right?” So the near miss is basically let me hop over to this other article here, which does a… I should also note that these articles that I’m reading about within them, they all are citing the scientific sources. But these papers are pages upon pages of a bunch of words that I really don’t understand. I mean, props to those people? Who are way smarter than I am. But my point here is that all of these thoughts that I’m reading, and I mean, to these people’s credit, they do a much job of just simplifying it.

But they’re saying what they’re saying, and they’re citing their sources, and the sources are all being part of these big scientific papers that were written. So what is actually the near-miss effect? Well, it all comes from actually gambling and the market of kind of Vegas casinos and just all of the gambling. That’s where it mainly comes from. But basically, what the near miss is saying is that, so in gambling soar or in gambling form, gambling experiencing the near miss of an almost winning hand, spin, or a lottery ticket, they take it as a sign that they should keep playing. What it’s saying is the near-miss effect, although you actually lose, it feels basically like a win.

I’ll say that again. The near-miss effect at its core is saying, although you lose, although you fail, although you do not get the desired outcome you want, because it was so close you in your mind, and this is where I’m not going to go down to the words get way too big for me. But one of those words is dopamine, right? Dopamine is one of the pleasure center of the mind, where if you’re getting dopamine hits, that feels good, right? That’s one of the basic principles of social media, right? That they figure it out with likes and with shares. I mean, if you post something, and oh wow, somebody liked it.

For a split second, you get a little dopamine in your brain, poop. I mean, and you feel like, “Oh, hey. That feels good. I’m glad somebody liked what I had to say.” Right? So that’s why social media, they know exactly what they’re doing with those likes and all those sorts of things. They’re trying to get your brain to give you dopamine hits. Every like you get is like a dopamine. That’s what’s going here is they figured out and through research and all the studies is even if you fail, even if you are wrong, even if that, like I said, the desired outcome that you want, you don’t get, but it’s close. It’s close. Dopamine, boom.

But again, remember, why does that exist? To keep us motivated, right? To keep us wanting to keep on going. So in the sense of, hey, learning how to shoot a basketball. That’s fantastic. That’s good. That way, it keeps us motivated instead of us just giving up and quitting right away. However, why is this so important, and why is this such a popular topic under the “umbrella of Las Vegas and gambling”? Well, because the gambling system is going to what? It’s going to rig this against you. The typical thing and the big experiment here that they’ve done is with slots machines. Now, slot machines are pure, pure randomness, pure randomness. But what they do, and it’s because of the psychology that the casinos and… they’ll understand is they’ll make you think. So I don’t know. What’s a typical thing.

You need to get three cherries or whatever. So let me put it this way. If you need to get three cherries to win, and you now understand the near-miss effect, and you were constructing a game, and the game is designed to get people to keep playing, to make them feel like, “Oh, that felt good. Oh, I got some… Ah.” What would you do? I’m guessing you would say, “Well, I would make them think that they almost won.” So how would I make them think that they were close, that they just had a near miss? Well, let’s just give them two cherries. That’s what it’s all designed. That’s why gambling is savage because… This is pure gambling, right? Where it’s just random chance, slot machine, perfect example. It is pure random chance. There’s no skills. So I’m not talking about poker, where poker, I would argue is not gambling because there’s a reason why you’ve heard of a professional poker player before, right? You never heard of a professional slot machine player because it’s pure randomness.

So looking at that, though, if you say, “Oh, I just had two cherries. So close. Dopamine, dopamine, dopamine. Let’s put in another coin and go.” That doesn’t make any sense. This is where the casinos are using your natural brain wiring against you, because they get it. Hey, let’s just make people think they’re close. Let’s make things…” They’re going to keep on playing. That’s what’s been proven to happen is because of this near-miss effect. So here in the article, it says… Again, this is from a cited source, a 2009 paper in the journal, Neuron showed that near misses activated the same reward systems in the brain as actual gambling wins.

So again, the people are losing. But because their losses wasn’t near miss, as far as the brain is concerned and the reward systems in the brain, they were activated as if they’d just had a gambling win. Think about how crazy that is. People lost. They lost. But yet even in the loss, because it was an almost win, a near miss, the same exact areas in their brain were triggered. That’s really bad for gambling underneath, again, the umbrella. That’s why I wanted to start all this off with why the near miss is actually a good thing. But under the wrong context, whew, this is not good when it comes to gambling.

So what’s more or next part of the paragraph here, what’s more, the effect is most pronounced, and this is going to be very important here as we move into the trading side of things. But what’s more, the effect is most pronounced when there is little time between putting down your money and playing the game. So in other words, okay, you put your money down, and everything gets again. Of course, in gambling, that’s just, boom, boom, happens right away. Right? So you know basically those little smaller amount of time, this effect, the near miss. It explodes that much more.

In this situation, it’s working that much more against you. Then the last part is, this is irrational given the presumably random chance involved, but we are not wholly rational beings. So yes. Of course, as I sit here and say, “Well, yeah.” Of course, that’s irrational, because if the slot machine is truly random, yeah, you keep playing it, you keep putting money into it because you feel like you are winning, even though you’re actually losing. But you feel like you’re winning, why? Because of the near miss. So it’s keeping you, what, motivated. So it’s keeping you motivated to do what? It’s keeping you motivated to do something that is actually totally random, and there is no skill involved in a slot machine, right?

So it’s motivating you to do something that is pure luck, pure randomness. That thing that you were doing is you were putting your money into something that is just pure rant, pure randomness, pure luck. That is bad. That is bad when… I mean, the gambling industry is savage. Goodness. I imagine all those Los Vegas casinos down to the basement. You have all these like PhD psychologists that are down there and a neurologist, people that just understand the brain, and they’re like, “Okay. How does the brain work?” Okay. Yeah. Well, this definitely benefits us as humans and many areas of life. But is there any way we can twist the surround and while the near-miss effect, Bravo to the basement of neurologists and psychologists and sociologists and all that? Whew, fantastic.

But let’s now bring this into the world of trading. I think this is just… Again, I see. I’ve done it. I see people doing it all the time. I mean, now I can sit here and actually speak, at least I think I can speak more intelligently about it, now that I have actual scientific backing and understand the human brain, just that much more, and I think that’s why these little segments are popular because we’re going down the rabbit hole of the brain and how it works. So let’s now apply this to the markets. Well, first off, the markets are not random. The markets are not gambling. The markets are not just blind. They’re just blind luck.

Now, I’m well aware that many people think the stock market is a big casino, that many people think investing or trading is just gambling. Can it be treated as a casino? Can it be treated as gambling? 100%, absolutely. But just because something can be treated as gambling, as casino does not mean that it actually is. Okay? That’s not a valid chain of logic there. So let’s just keep that in mind. So we are now operating under the premise that the markets under the right conditions are not random, under the right conditions are not going to be some massive casino, under the right conditions. The right condition is not the Dunning-Kruger effect, which is what I started this whole thing off with.

If you are operating under the Dunning-Kruger effect, then yes, the markets are going to be random. The markets might as well just be one big casino for you. The problem that I see, and maybe you see where I’m going with this is traders, they’re out there. They’re doing stuff. They think they’re learning. But again, the Dunning-Kruger effect, when you don’t know what you don’t know, and part of that is being, “Well, I watched YouTube videos. I did this and that and the other.” I mean, there’s so much information out there, and that’s true.

In my opinion, that makes the Dunning-Kruger effect that much bigger. Here’s why. For those who are long-time listeners, you’ve heard me say this again. So I’ll try to keep it brief. But I’m the first to admit, 100%, there is lots of great information out there for free on the internet. I’m not going to sit here and say that there’s not. The problem is that there’s also a whole lot of bad information out there. There’s a whole lot of incomplete information out there. There is just a lot and a lot of garbage out there.

The Dunning-Kruger effect, when you don’t know what you don’t know, you do not know what is good information. You do not know what is bad information. But let’s just assume that somehow, somehow, and this is a massive, massive assumption, but somehow you’re able to cherry pick from the massive sea of free information. You’re somehow able to cherry pick out all the good bits of information, which is just a crazy assumption, but let’s just assume you do that. There’s still a huge problem. Now you need to actually know what order to learn that information in, because if you learn about information in the wrong order, so let’s just use math as always. Let’s say that somehow you’re able to pluck out all the valuable bits of information that teach math. But then you start to learn about geometry before he learned about addition, and then you’re learning about calculus before you learned about algebra, and then you learn about subtraction, and you learn about subtraction before you even know how to count to 10.

Do you see the problem? Yeah. All that is good information. But if you’re learning about it in the wrong order, with no structure, and it might as well just be bad information because it’s still going to be totally overwhelming. You’re going to be swimming and drowning in a sea of good information, but random information. But like I said, that was just assuming that you could somehow actually pick out all the good bits of information. The reality of the matter is because when you’re operating underneath the Dunning-Kruger effect, you don’t know what you don’t know. So you’re learning about good information mixed with bad information in a random order.

So under that premise, under that umbrella, the near-miss effect is going to destroy you. How so? Well, the same exact thing. You take a trade. Oh, and your mind is going to say, “If that would have just happened, you would actually made money. Oh, you were so close.” The only thing that you needed to change, “Oh, you feel so close. Oh, it was a near miss.” Okay. Well, if I would have just done that, it would have been, and then you start to think that you’re close. You feel like it was a near miss.

But in all actuality, and again, I see this all the time, people think… No, I’ve never been able to identify it like this. But now that I have… This is why I love these two, because these are forcing me to do research, and now, it’s going to allow me to help people better. But now I can tell people, “Listen, I get you felt like you’re almost close. I get that you feel like you’re just about to figure it all out.” But I mean, not to rain on your parade. You’re not even close. You are not even close. You are missing so much stuff. So hey, let me tell you about this near-miss effect. That’s great. The near-miss effect, it’s keeping you motivated. I mean, it’s making you want to drive and keep on going and not give up, which is fantastic. That is needed for the world of trading.

If you want to have success, I’m going to talk about all the time, you got to have passion. You got to be motivated. You got to want to work hard. The near-miss effect is fantastic, but under the right conditions. When you’re operating under the Dunning-Kruger effect as the overall conditions, it’s the same as totally going to a casino and thinking that, “Oh, I was so close.” I get to you think you’re so close. But what gives you the right to think that you’re close when you don’t know what you don’t know? How do you know that you’re close? I get it. It might feel like you’re close. I get it those areas in your brain are activating like it was basically a win. But it really wasn’t.

I get it. Well, Clay. But like your basketball shooting, you can just keep on going and keep on going, and that’s true. But every time you miss a shot in basketball, it doesn’t take anything out of your pocket book. It doesn’t cost you money. But in trading, that’s just not the case. Every time you miss that shot, you are losing money. Then if you’re not doing the money management and the risk management the right way, you could be losing big chunks of your money. If your money is gone well, “Well, you’re out.” I mean, and that’s the big difference is the markets, you have a finite resource. shooting a basketball, you have your hoop, you have your ball. You just need some time, and you need your ball and not to get popped. But even if it gets popped, okay, fine. It’s only going to cost you what? 20 bucks for a new basketball.

But with trading, the way brain is wired, you’re being motivated to continue down pathways that you actually don’t want to go down. I get it. You think you’re on the right the pathway, hence the Dunning-Kruger effect and why I would say go listen to that. Well first, you might think you’re on the right pathway, but you’re actually not. But now, because of this near-miss effect, you’re continued to be motivated down the wrong pathway, which you think is the right pathway, but it’s not big. But you keep on plowing down because of the near-miss effect.

Oh my goodness. It makes so much sense. Now, why? So many people fail. So much sense. I mean, the human mind, everything is literally rigged against you. I understand this next statement, “Oh, Clay. You scumbag capitalist. I see what you’re doing here.” So what is the right environment? Well, the right environment, and I’m not saying this about… I’m not saying that what I offer is the only right environment. But you need good information. You need structure. You know what? That’s where education and actually paying for something offers a whole lot of value. I know many people probably just clicked off. This was all just one massive sales pitch. I understand. I hear what they’re saying. I really do get it, especially in this world where, I mean, there’s just so much garbage out there. So I’m not offended.

The best I can really do is I really do believe in this stuff, and I’ve done videos on this before, where I went through the markets on my own, cost me $25,000, over a year of my time, a massive headache, just painful, painful, painful. However, when I did decide I wanted to now diversify into real estate investing, now at the time, at the time I didn’t identify it like this. At the time, I wasn’t like, “Well, because of the Dunning-Kruger effect and the near miss… I’m going to give myself some structure with rules.” No. I didn’t identify it like that.

But I just realized, “Okay. I’m not going through that again.” So for my real estate investing, and I’ve done videos like this on the YouTube channel, where I break down literally everything that I invested and spent, but I invested just shy of, I think it was like $4,700 in real estate investing training before I ever did my first deal. I will just say it that. The irony is the passive cashflow is almost right around per month what I invested to actually learn. So more of the story. Let’s see. Man, I’m getting old. I don’t know, about eight years ago, since I started real estate investing. I can’t remember. I’ve more than paid back for that $4,700 or 48, whatever it was. Let’s just call it 5,000, make it easy.

So this is not me saying this from strictly oh, you’re just trying to manipulate me now into paying for your class. Not at all. If you feel better, if you think somebody else’s class can give you structure, and you’re kind of on the fence, then please, I’d encourage you, go with them. Of course, I don’t have any problem saying I would love for you to invest in my training program. I’m not going to sit here and deny that. But I will also say that I want you to go what you feel most comfortable with and that what you think is going to be the best chance to give you that structure that you need, because the near-miss effect with the right structure is fantastic. It’s going to keep you motivated, because when you have the right structure, so I’m just going to use my program, not to suggest that this is the only program that can do it, but just because I know how my program is structured, because, well, I’m the one that structured the program.

But you’re going to go out there. I’m not saying you’re not going to lose. Of course, you’re going to lose. But because you actually have structure, because you actually can refer back to certain areas, you’re going to be like, “Oh, okay. Yeah, I was close. But ah, I got that wrong.” That’s actually the learning lesson that you should have taken from it, because when you’re no longer under the Dunning-Kruger effect, and you’re in a structured environment, you’ll be able to refer back and be able to identify what the true learning lesson is. Here’s the other tricky part about the markets. I can’t stand this. I cannot stand this, but it’s truly another savage part of the market, where people imply, “Hey, you know what? I never lose, because I’m always learning.”

Which basically implies, if you lose in a trade, then therefore there’s something to learn because you did something wrong. But no. In trading, no. In many cases, that’s absolutely true. There’s something that you did really bad. But you know what? There does reach a point in trading where you could lose money, and the learning lesson is this. There is no learning lesson. I guess the learning lesson is more just the reinforcement, the reinforcement being there’s no guarantees in the market. Sometimes the markets are just not going to as beautiful as a setup may be, as great as your strategy, as high of a wind rate as a strategy may be.

There’s no such thing as a hundred percent win rate. So you know what? I didn’t do anything wrong. I don’t need to go back there and change anything in my strategy. At the end of the day, not everything’s going to work out. The market doesn’t offer up guarantees. The market can offer up more than likely to happen than not situations. But there’s no guarantees. Sometimes that’s going to be the learning lesson is there is no learning lesson, other than, hey, not everything’s guaranteed. But how are you ever going to identify that under the Dunning-Kruger effect?

I mean, I suppose you eventually can, but I hope you have lots and lots of money you can burn through. I get it. Well, Clay, that’s what simulated trading for. That’s what paper trading’s for. Yeah. Well, that’s the problem is paper trading, first off, most people don’t even do it the right way. “Hey, what do you pay for trading with?” “Oh, I got a million dollar account.” “So you’re going to have a million dollars when you go throw your money?” “No.” “Okay. Well, there…” That’s just a basic one. But even if you’re doing paper trading the right way, still operating under the non-structural of Dunning-Kruger effect, just because you’re making money on paper doesn’t mean that you’re actually doing anything, right that’s going to translate to real money.

I see it the time. You’ve probably been there. I mean, I was doing so well in the simulator. I was doing so well with my paper trading. Then I went to real money, and it was like a whole different world. Exactly. So please, don’t be sitting there saying, “Well, Clay, everything you’re saying can be avoided if I just pay for trade, because yeah, you’re right. Money is a finite resource. So I can’t keep experimenting, experimenting, experimenting with real money because yeah, I will run out. But that’s what a simulator… No. I all the time see it. Oh man, simulator trading was going great. Real money trading, not so much.

But when you go and you operate in a structured environment, and you do have that near miss, you know what, it’s going to feel good, which is good because you’re being motivated to keep on going. But at least you’re going to be able to have the resources, the structure behind you to help you truly identify what the near miss was, what you could have done to make it better or more importantly, what could have been done to just say, “Hey, you know what is a near miss?” But sometimes that’s just how the market works is it is just the near miss. You didn’t do anything wrong, but there’s no guarantees. So I get it. But here’s the good news. Feel good about it. Feel good about the near miss because, you know what, you did everything right. It just didn’t quite work out.

But when you don’t understand that, and again, let’s go back to the talking point here of, and I almost forgot about this, but when is the near miss more pronounced? When is it just more powerful? When there is little time between putting down your money and playing the game. So look at it like this. If you put down your money in an investment, and you have no idea what’s going on, and then you check back several months, maybe even years from then, I mean, there’s not going to really be any sort of dopamine. You’re just going to kind of like… I don’t even know why I put them. Why did I do? There’s going to be a massive disconnect, right? Because there’s just a bunch of time that’s separated from when you put the money down and then from when things actually really started to matter.

So that’s why the effect would be very, very, very much diminished. But in this situation what is the science saying? Well, the fact is more, or excuse me, most most pronounced when there’s little time. That’s what trading is, right? You’re putting money in and basically, boom, blah, blah, blah. You’re watching. I mean, there is no time. So now, all of a sudden, you’re going to have that much more… There’s going to be that much more of a propensity to sit there and be like, “Oh, I was so close. Let’s go again.” I mean, every force trades before. Of course.

I mean, because you’re going to think you were so close because you’re so close and because there’s not much time that’s going on, I mean, so from the day trade and even really swing trading, because swing trading, a few days or even a couple of weeks, really, that can definitely start… It makes sense why the effect would be that much more pronounced in those periods. But again, that’s not a bad thing, assuming you’re under and operating underneath the right structure. But the more I sit and reflect on it, I mean, it’s, oh man, the Dunning-Kruger effect, and then you combine that, and then you bring the near-miss effect underneath the Dunning-Kruger effect.

These effects are really trying to just affect your trading results. I mean, crazy, crazy stuff. If there’s one thing I would just encourage you to be aware of it and just consider putting some structure into your life, putting and just… There’s, who was it? I just was talking with somebody on YouTube, and they just started with $50,000, and then they lost, and they were doing well, and then they said, “I just started, and now I’m down $3,000 after my first day.” They were commenting on my video saying and how much they enjoy them and how much they were watching them and how much they they felt prepared, and I had to clarify.

I said, “Well, wait a second. What videos are you talking about? My YouTube videos or my actual class videos?” “Well, your YouTube videos.” I said, “Listen. Full disclosure, my friend. My YouTube videos, yeah, they’re designed to give her information. They do information. But at the core, they are just designed to give you my style of teaching. Do you enjoy my style? Do you enjoy the way I explain things? Do you enjoy the way I’m able to construct a concept and then explain it?” If you do enjoy it, well, then that’s supposed to be kind of, “Hey, Clay. Do you have a trial?” “Yeah. My trial is my YouTube channel. Check it out. Check out the YouTube channel. Do you think I’m good at explaining things? If you don’t, then definitely don’t invest into my program. If you think I am good at explaining things, if you enjoy the way I teach and explain things, but yeah, there’s a trial. You would enjoy the classes.”

I told this person this, and they’re like, “Well, I’m kind of cheap. I don’t want to pay for courses.” I said, “You know what? Full disclosure, you can 100% learn everything for YouTube for free. There’s no doubt about it. I’m not going to sit here and say you can’t.” I said, “The question becomes, do you think you can learn everything before that $50,000 is gone?” They wrote back and said, “I think it costs me about $20,000.” I said, “Okay. I mean, I disagree with that.” It’s going to cost them. If they lost $3,000 in their first day, it’s going to cost them more than $20,000. But I just went with their number. I said, “Okay.”

So are you telling me that you’re not going to pay the 2,500 for my program? No, I’m not saying it’s going to guarantee success or that’s going to prevent you from ever losing money. But you’re not going to give yourself the 20, or you’re not going to invest $2,500 to put yourself in a structured environment, where you can truly learn to not lose $3,000 in one day. So you’re going to just avoid investing $2,500 so that you can go and then lose 20,000? Of course, I wrote back, “No, no. That math doesn’t make any sense.” I don’t know if that person ever signed up. But that’s really what I’m getting at is, yeah, everything is for free out there in YouTube and for everything. You can learn how to trade for free.

But it really just becomes a matter of, what’s your time worth, and how much do you think it’s going to take before you can actually learn? From what I’ve seen, it’ll be way, way, way more. I mean, think about it. My program cost $2,500. How much does that person lose in the first day? 3,000. They lost more than my entire program in the first day of trading trying to experiment thinking that they had figured things out. So that just what it goes down to. That’s what a lack of structure. Really, to be quite Frank, they thought my videos were good, and my videos are good to an extent. They are good to an extent. There’s broad information. There’s general information. But if you want the nitty gritty details, that’s where my program comes into play.

So here they are thinking my videos, “All I need is Clay’s YouTube videos.” They just had to learn a hard lesson. But when they’re operating underneath the Dunning-Kruger effect, and you don’t know what you don’t know, well, they didn’t know that. They didn’t realize that there was more to trading. So right there is a perfect example of it. In fact, I feel like I should go try to take a screenshot of that. But I don’t know. We’ll see. But anyways. That’s how this all plays a part. So my core point here is just think about it. Consider putting yourself in a structured environment. Consider yourself surrounding yourself with other people, other traders that are going through the same things of you, because there is… I should probably do… There’s some good scientific research out there about communities and when you surround you… This is not rocket science.

But if you surround yourself with a bunch of people that believe X, Y, Z, you know what, you’re probably going to believe X, Y, Z. If you put yourself in a community, which is part of my program, and everybody’s going after the same things, they’re all operating under the same culture and mentality, then iron sharpens iron, right? That’s also the benefit of why you got to be very careful of who you’re surrounding yourself with. But like I said, that’s a whole nother podcast in and of itself. So we’re at almost 41 minutes now. I don’t think this thing was going to go… I was thinking right around 25 minutes on this one. But apparently, I went down the rabbit hole a little bit.

But overall, the near-miss effect, I can’t say it’s savage because that’s not true. It’s actually a good thing, assuming you’re operating or assuming it’s operating under the right umbrella conditions. If it is, then it’s going to be that great motivation source for you. If it isn’t, it’s going to be that great motivation source. That continues to motivate going down pathways that you should not be going down. So just be aware of it, and consider putting some structure in their life. Like I said, would love for you to join my community, my program. But if you feel more comfortable with somebody else, or if you think somebody else would do a better job, hey, that’s cool. I wish you nothing but the best. I just want to give you the best chances possible.

The way the human mind is wired and worked, and when you factor in the Dunning-Kruger effect and the near miss, it can get that much more shaky out there in terms of trying to trying to actually have long-term profitable success as a trader. So if you did enjoy this, then again, let me know. I enjoy hearing feedback on these sorts of episodes so I know whether or not I should keep making them or not. So love to hear feedback on it. Even, like I said, going back to the first fun fact, the ability to take criticism, and that’s, once again, where structure comes into place, right? When you’re part of a community, you’re going to have criticism. It’s going to be constructive criticism.

So when you have a near miss, you can go ask people, “Hey, was this a near miss? Or am I just thinking it was a near miss, but it actually wasn’t?” Again, assuming you can take criticism, then that’s very valuable to differentiate, was it a near miss, or do I still have a long way to go? But again, that would require you have the ability to take some constructive criticism. But again, in order to even get that constructive criticism, you need to surround yourself with structure, which again, I can only speak for my program, you’re going to get from me because all members have direct access to me and then also just from other members in the chat room, you can go and get that constructive criticism also.

But again, you got to, A, have access to the constructive criticism, but B and most important, you’ve got to actually be able to take the constructive criticism, which, like I said, I promise I didn’t line it up all like that, but it just happened to work out in that way. But if you did enjoy this, then final few things here before I go. First off, if you’re listening on iTunes or any other Spotify or other podcast players, first off, be sure to subscribe. Also, a rating really helps us out, especially a written review on iTunes. If you wouldn’t mind doing that, I would really appreciate. That really helps out the show.

If you’re listening at claytrader.com on the show notes page, there is a little live chat box in the bottom portion. So if you click on that, and then you’ll have to request to speak to a human. But you do that. Yeah. Reach out to us and me in particular. Just ask to talk with me, and I love to hear it. Hey, Clay. I was listening to the episode, and I know. Give me some criticism, constructive, please, or just give me feedback, suggestions. I would love to hear from you.

So thank you all of you that listen to this week and week out. I appreciate your support. If you’re maybe new to the show, hopefully you enjoyed it, hopefully you decide to subscribe. I’d love to have you as a weekly listener. But yeah. Get out there and be aware of your human brain, how it’s wired, and how can either help you and work for you or hurt you and work against you.

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 claytrader.com.