Clay Trader Podcast
STR 257: Science Based Mental Traps (Avoid!!!)
I came across an article recently which centered around “mental traps” that successful people don’t allow themselves to fall into. While the article is not about trading in particular, the science based observations and discoveries 100% can be applied to us as traders. If you are new to trading you many not realize just how big of a mental challenge it is, so whenever you can get insight into how the human mind (and emotions) work, you can be better prepared to guard yourself. As many of you can relate to, the minute you let your guard down within your mind is the minute problems and mistakes will show up in your trading results. Let’s use some science to help make keeping up our guards as strong as possible!
Clay: This is The Stock Trading Reality Podcast, episode 257.
Announcer: This is The Stock Trading Reality Podcast, where you get to see the realistic size of a trader’s journey. Get inspired and stay motivated by every day normal people who are currently on their journey to trading success.
Announcer: And this is your host, he wants to apply for a job at Google Clay Trader.
Clay: As I’m sure you’re aware Hollywood, when they’re making movies has the tendency to take the, “Based on a true story” and exaggerate it a little bit, maybe put too much of their own twist into things.
Clay: And, when it comes to movies about Google, and I’ve seen several of them, I can’t think of the name. There’s one with Vince Vaughn, I think it’s The Internship or something like that. But, there’s a couple out there, and you see it and you’re like, “Okay, it’s probably not quite like that. That seems a little too good to be true. It’s probably Hollywood putting their spin on it.” But, little context from my point of view, my brother-in-law works for Google.
Clay: So my wife and I were out in California recently. And part of just being at Google is you could invite family in, or friends, whoever, I guess. But, you just have to get them registered. But yeah, you could have them in for lunch, and then you can give them a tour, and given that we were going out there, I told Mark, my brother-in-law, “Yeah, I would definitely like to do that. That’s pretty awesome. You work for Google.”
Clay: So we did that, and I’m here to report, no Hollywood is not exaggerating anything. It was amazing. Four different buffets on campus. So for lunch, four different all-you-can-eat buffets, wherever you want. And of course you don’t pay for anything, it’s all paid for, for you. So that’s just part of the gig. And they give a little bit of context about the buffets. One of the meals I had was, braised lamb cheek, and it was good. Braised lamb cheek? I don’t even know what braised really means, I’ve never had lamb’s cheek before, I don’t know what cheek it was. But, there could be kids listening so we won’t go down that hole, or that rabbit hole there.
Clay: But yeah, it was good. And, that was just kind of the tip of the iceberg. A full field soccer field, basketball courts, volleyball courts. I saw a bunch of outdoor workout out equipment, so of course they have a great indoor gym. But, a lot of outdoor stuff, “What is that for?” “Oh, that’s the crossfit.” There’s a personalized crossfit coach that shows up. So yeah, if you want to over your lunch hour, take a crossfit class, that’s what’s being offered right there. And the list just goes on and on. And I walked away quite amazed.
Clay: So if you ever have a chance to get a tour of the campus, do it for sure. And you’ll probably walk away wanting to apply. I don’t know what I would do for Google, I don’t know how to code anything. My brother-in-law works in the sale side of things. I don’t think I’m very good at sales. I don’t know, maybe I could apply to be … change some trash in and out. I could do that. But, I was very, very impressed, and it makes that much more sense about why, they’re probably really good a recruiting people to their campus because … or to just Google as a company. Because they got a lot of stuff going on. But, it was very, very … it was a very eye-opening experience, and I mean that in the best way possible.
Clay: Now for today’s episode, I’m going to be flying solo once again. And I find this very, very important, so much so that I’m going to fast-track this episode. We have a bunch of other interviews already lined up. And I’ve already done them, they’re recorded. But, like I said, I’m want to fast-track this one to get it released sooner than later. Because this article that I found that just came out relatively recently as of the recording of this. I mean, it’s not about trading, but if you’ve never seen the article I didn’t tell you that. I could replace just a few words here or there, and you would have no idea that it wasn’t about trading.
Clay: You could sit there and be like, especially if you’ve traded with real money, and you’ve met the voice in your head. Then you would sit there and say, “Oh yeah, this is totally an article about trading.” Even though it’s not, it’s about just life in general, but wow, this is stuff that should be and needs to be applied to trading because it is 100% true.
Clay: But here we have the twist. So it’s nothing new in the sense of, “Oh well Clay, you’ve never talked about this stuff before.” No, it’s come up time and time again throughout the history of the show. But, the one little twist is this is coming from now a scientific perspective where these statement and these observations are being made by professionals. I’m an engineer by degree, I’m not a psychologist, I don’t have a PhD in the human mind or anything like that. I don’t know anything about neuroscience.
Clay: But in this article, like I said, it is all scientifically-based, it’s coming from psychologists. And it’s like I said, nothing new, but confirmation that, “Yeah, you know what, if you do all those feelings, if you are tempted to view something in a certain way. That’s just kind of how the human mind works, in their different areas that from a self-awareness perspective, we do need to be aware of so that we can avoid them. And that’s what it’s all about, just being aware. And when you’re aware of something, well that’s the first step to being able to avoid it.
Clay: I came across an article on CNBC, and the name of the article, Five Mental Traps That Successful Traders Never Fall For According To Psychologists. Now that’s what I mean, I’m lying it doesn’t say, Successful Traders. It just says, Successful People. But for us, for this podcast, given that it is all about trading, let’s just look at it as, Five Mental Traps That Successful Traders Never Fall For According to Psychologists.
Clay: So these five, I mean, they’re so, so true. Not only for life, but for us as traders, and that’s why I want to go through them, want to talk about it because I mean, this stuff is … It’s totally applicable to us as traders.
Clay: So starting the article, “Our brains are wired to make sense of things by drawing connections between thoughts, ideas, actions, and consequences. But, sometimes they can be straight up wrong, negative, or misleading. Cognitive behavioral therapists call these instances, cognitive distortions. These traps cause us to perceive reality different than how it really is. And the most successful people have learned how to recognize and avoid these errors in thinking at all cost.”
Clay: “So for us once again, and the most successful, let’s just call it traders, have learned how to recognize and avoid these errors in thinking at all cost. While writing my book, The More or Less Definitive Guide to Self-Care, I researched and interviewed psychologists to learn how these thought patterns can get in the way of our health, happiness, and ability to get past struggles and achieve our goals. Here are some of the most common mental traps that hold us back from success and how to overcome them.”
Clay: So that’s the framework here, this author has written a book, and as part of her book, she’s gone out there and just dove head first into the research, the science, interviewed people, and these people just happen to be professionals that much more into the human mind, neuroscience, emotions, how all that work.
Clay: For those of you that maybe this is, not necessarily your first episode you’ve listened to, but perhaps you’ve never really put any of your money on the line. Don’t get me wrong, trading simulators, demo accounts, all those things certainly have a place in the market. But, once you have real money in the market, and it’s your money, and you start to see, “Oh wow, I’m technically losing money right now.” “Okay, hey I’m starting to make money.”
Clay: The human mind is a crazy place, and you will meet emotions. And it’s one of those situations where … I can sit here and talk until I’m blue in the face about how emotions are there and they’re going to be there. But, at the same time, it’s definitely one of those sets of circumstances where you just kind of almost have to experience it. And as I sit here and stumble over my words, I’m trying to think, is there really a way … And there’s really not, it’s something where you can trust me, but at the same time, I’d encourage you to just kind of throw money into a trade, a very small amount, I’m not saying throw your kids college tuition and that way you can experience why I’m still kind of amped up about this, because emotions are so … they’re very real in the world of trading and they need to be understood.
Clay: So number one, emotional reasoning. So what is emotional reasoning? Mistaking our emotions as evidence for the truth is one of the most common mental traps we fall into. And what I like about this article is they’ll give us an example.
Clay: So example, “I feel like our ideas are worthless, therefore, I shouldn’t share them in this meeting.” So think about this though, they way we feel about a trade set up. Does that mean that it’s actually true?
Clay: So for example, maybe you’ve had a couple of losing trades, and you’re looking at a totally valid set up. It meets all the criteria on your checklist. It meets, yes, it’s got yes, it’s got that, okay, great it’s got that.
Clay: But let’s just say you’ve got a couple losing trades, emotionally you’re going to be feeling, Oh … you’re going to be very wishy-washy. And it’s very easy to take that emotional reasoning, and then use those emotions as evidence for the truth that, you know what? No, no, no that doesn’t actually meet everything. And it really does, but because your emotions are taking over, and you’re feeling bad. All of a sudden, you’re going to start to look at something as bad itself. When in all reality, no, no, no that is real, that is a good setup, you should be taking that setup. But, when you do that emotional reasoning, that’s where that’s coming from.
Clay: So picking back up per the article, “To combat emotional reasoning, cognitive therapists suggest asking yourself questions like, ‘What are the facts that support my emotionally based determination?’ Or, ‘Is it possible that my feelings are clouded by some bias that ought to be reevaluated.’” And that’s a big one. In the example that I was giving, the bias would be, “Well, you just had a couple bad trades.” Right? So the biases, you’re feeling kind of bad, you’re feeling maybe a little bit negative about things. So are you now projecting that onto a setup that in all actuality is very valid?
Clay: So what are the facts? And that’s why a strategy is so important and needs to have criteria. Because when you have criteria, you can go down there and literally say, “No, that’s a fact. It’s being met.” “That’s a fact, it’s being met.” “Okay, that’s a fact, it’s being met.” And when you do that, you can say, “You know what? Why am I feeling that way? Because all my facts, all my criteria, all my rules are being met. But, why don’t I have any confidence in it? Ah, because I’m doing this emotional reasoning thing. I’m letting a bias about something exterior now influence my thought process now, and it might hold me back from actually making a trade that is totally valid.
Clay: And then the section wraps up, “When you stop transforming your feelings into truth, you gain the logic and clarity that will allow you to make smarter decisions.”
Clay: And wow, was that powerful for us as traders. “When you stop transforming your feelings into truths.” Just because you feel a certain way doesn’t mean it’s actually the way it truly is, right? And this is by all means, and I’m kind of chuckling and laughing because I can totally relate to all those, especially in the world of trading. It is ridiculous how many times I’ve caught myself in having to kind of step back and literally, basically talk to myself and say, “Is that really the facts of the matter Clay? Is that truly the truth? Or, are you just feeling that way because of some prior experience?” And in many cases, it’s well I’m feeling that way because of a prior experience.
Clay: And think about it, that’s what revenge trading is all about. You’re upset, you just lost some money, maybe you did something stupid, or maybe you did something right, and it didn’t quite workout, so you are upset. Well now you see something, and now you’re transferring those emotions and you’re turning kind of non-reality into reality. You’re saying, “No, no that does look good.” … And now all of a sudden it can work both ways, so now it’s not preventing you from making a good trade, it might actually force you into making a bad trade because you’re taking these feelings and all of a sudden causing those feelings, those emotions are distorting. Hence, the cognitive of distortions, they’re distorting what the set up actually is. And when the set up actually is something that, no, no, no that doesn’t meet all your rules. Uh-oh, now you’re putting yourself into a bad, bad situation.
Clay: Number two, and I think I see this one probably the most, especially in the world of social media, message boards, all that stuff.
Clay: But number two, blaming. “We engage in blaming when we hold others accountable for our own actions and feelings.” So the example here, “On your way out to work, your cat escaped through the door. ‘Great’, you say, ‘Now, I’m going to be late. And it’s the cat’s fault.’ We often blame others because it helps us preserve our sense of self-esteem by avoiding awareness of our own flaws or failings. According to Susan Whitbourne, a professor at Emerita of Psychological and Brain Sciences at the University of Massachusetts Amherst.”
Clay: Now, I don’t think this is really, it’s kind of one of these hide in plain sight. We’re like, “Oh yeah, that’s why other people … That’s why you blame others, because you don’t want to blame yourself.” But I mean, going down the science rabbit hole, why don’t we want to blame ourselves? Well, as this psychologist says, well that’s because we’re trying to preserve our sense of self-esteem. We want to feel good about ourselves, and when you want to feel good about yourselves, well then a good way to do that is to not blame yourself. Because if it’s not your fault, then hey, I can still feel good about myself. And when you blame somebody else, well there you go.
Clay: I mean, how many times have you done this in your trading? “Oh, I lost money because …” And then all of a sudden you start to point fingers elsewhere. I mean, I’ve been there many times before. You forget to point the figure at the person in the mirror. And, as sad and crazy as this can be, and I wish I could say I was making this up.
Clay: But, a little context here, I do … Not my main YouTube channel, but another one, I do analysis videos of technical charts, and they’re very, very basic.
Clay: But some people out there, like I said, they’re not trolling, they really believe this, but they believe that these are some sort of magical mystical thing, or some sort of signal because if the price goes down, well then it’s my fault, because I did a video chart on it. And, oh it went down again.
Clay: And then all of a sudden, they open up the door of confirmation bias where there can be instances where it doesn’t go down, but they just always seem to ignore those. Which again, if you do a deep dive into just the confirmation bias from a psychology standpoint, it makes sense because they’re only paying attention to things that fit their belief. And if their belief is my video charts are some sort of signal to short it, or some sort of just … Like I said, it’s crazy. I wish I’m making this stuff up, but no, some people literally take the, “I don’t want to blame myself”, so far, that they really start to believe in fairytales. They start to get superstitious and say, “Oh no, I just lost money because it went down, and it went down because this random person on the internet posted a technical analysis chart on it.”
Clay: And I get it, and it sounds crazy, if you’re not aware of this. Now, if you’ve been on social media especially StockTwits. Wow, there are some crazy stuff out there. But, this is where it’s all stemming from, these people just don’t want to blame themselves.
Clay: Picking back up with the article. “But, failing to take responsibility for the consequences of your own behaviors means you’re not learning from your mistakes. And being able to grow through your experiences, especially the unpleasant ones is crucial to success.” Yes, absolutely, if what you learned from losing money is, it was somebody else’s fault. Sure, technically speaking you did learn something, but you didn’t really learn the right thing at all. And if you’re always just blaming some external force, and saying, “Well, that’s the lesson learned is, I lost money because of that.” Then, like I said, you’re just never going to get any better. There is nothing more freeing than having it be your fault.
Clay: Look at it like this, let’s say that you lost money, or anything in life, and it’s not your fault. I mean that is very scary. Why is that scary? Well, that means there’s nothing you can do about it. Whereas, if you do blame yourself and you’re saying, “This trading mistake.” Or, just in life in general, “This situation in life. That comes down on me.”
Clay: That is pure freedom, because if you’re the problem, if you’re to blame. Guess what? You’re also the solution, and that’s great. It is so terrifying to think that there are situations out there where you can say, where you can blame something else. And just say, “Yeah, there’s nothing I could have done about it.” Or, “There’s nothing I could’ve done about it.” That is very, very scary.
Clay: But you know what? In trading, as traders, guess what? We don’t have fear. We have the person in the mirror that we can blame as the problem, but because it’s the person in the mirror that’s the problem, they’re also the solution. And when you look at it like that, as the article states, as these professionals in science are stating, that you know what? … I want to read that again, “Being able to grow through your experience, especially the unpleasant ones, the unpleasant ones.”
Clay: Those losing trades, even it could be a winning trade, but you know in your heart of hearts, holy smokes, I totally got lucky there. That was definitely not skill. And if you can actually look at a winning trade and say that was actually unpleasant because I know I broke a lot of rules. I mean, think about how much learning you’re doing when you can admit that you won, but you got a winning trade because, “I really don’t know what I was doing. I was sort of guessing. Okay, well how do I change that around?” That is again, to quote the article, “Crucial to success.”
Clay: And then the final part of that section, and I quote, “Playing the blame game is irrational, and it stigmatizes the other party.” Says, Gustavo Razzetti, Author of Stretch Your Mind. He suggests, “That practicing empathy can help you quit the habit of blaming. Focus on understanding the other person, try his or her shoes, get rid of the right/wrong approach.”
Clay: Now for this, this isn’t totally applicable to trading because yeah, there definitely is a right and wrong approach. But for life in general, yeah, I mean that does help to kind of look at the other person’s, put yourself in other person’s shoes. So from that point of view, I get it. But trading, you do need to have a right and wrong approach to things. So I mean, from that point of view, yes, you need to understand that there needs to be structure. It’s not just do whatever feels right. To and extent, yes, because you got to build a strategy that fits your personal risk tolerance. But, there also needs to be some rigid rules, and some general frameworks out there that need to be followed without a doubt.
Clay: But at the end of the day, if you’re blaming somebody else, then you are undercutting your ability to learn. And when you’re not learning, well then, you’re just never going to improve.
Clay: All right well, as we head into number three here, just please show me some grace, just be a little forgiving, because I can’t say this word. I’ve tried time and time again. And, I’m going to butcher it. But catastrophization, so a catastrophe right, and you’re taking the catastrophe and you’re just kind of making it bigger. But, catastrophization, I think that’s how you say it. Again, a little grace, for you long time listeners, you know I can barely speak the English language, so you’re not shocked by this.
Clay: But picking up. Many of us have fallen down the negative spiral of expecting disaster to strike no matter what. Wow yes, I’ve been there many times. Have you been there? Where you’re like … I mean, I’m sure as soon as I do this, and then you insert some negative situation. Probably you don’t make some money, but then I’ll sell too soon, and then I’ll miss out on making a whole lot of money. Or maybe you’re just saying, well you know what? I’ll probably get in, and I’ll probably do something stupid. And you’re just so negative, everything is going to be a catastrophe.
Clay: So an example here, “The news reports that a storm is approaching, you start to imagine all the bad things that can happen. What if my house gets destroyed? What if someone I love gets hurt? What if I get hurt? Fear, especially irrational fear plays a big part in catastrophizing researchers have found. But always anticipate in the worst possible outcome is far from useful. In fact, studies show that it can lead to anxiety and depression. Psychologist Judith Beth, best known for her work in Cognitive Behavioral Therapy, recommends listing the advantages and disadvantages of putting your time and energy into catastrophizing.” Or, she says, “It may help to play devil’s advocate, and list out all the best case or even okay case scenarios you may find yourself in a calmer, less anxious and clearer state of mind.”
Clay: In this one, I agree with and I don’t agree with. What I … And I realize this is what they’re saying, but they’re just saying, you don’t want to always look at the worst case scenario, because if you’re always looking at the worst case scenario, then as studies have shown that could lead to anxiety and depression. But as traders, we do need to consider, you know what? What if I’m totally wrong? Which is definitely a worst case scenario.
Clay: But, by going on that pathway, at least we’re going to have a trade plan that keeps our account, that keeps everything in place the way everything should be in place. Sure, you might lose some money, sure your account might go down in value. But by looking at the worst case scenario, we are factoring that in. But, that’s very, very different than what this is also talking about and mainly talking about in a sense of just expecting the worst to happen, and thinking that, “Yeah, it’s going to happen because I’m just terrible.”
Clay: Or, kind of going back to number one, that emotional reasoning. You’ve had some sort of bad trades, and now all of a sudden the reality becomes … the evidence of the truth that everything is going to go worse, and now all of a sudden you’re making everything a catastrophe, and you don’t want to do that. You have to have confidence, right? You have to think that, “You know what? I’m going to win, my account is going to keep going.” You have to have confidence, you have to be positive, but also in trade plan and development, you certainly want to make sure that you know what, if I am totally wrong? Is everything going to be okay? And that’s definitely the starting point from which a quality, well-constructed trade plan is going to be constructed from.
Clay: But, if you’re sitting there saying, “You know what? No, I’m never … Because it can cause anxiety and depression, I’m never going to look at a worst case scenario.” As traders, that’s not a good idea. We definitely need to make sure that we have the proper protocols and systems in place if things to go wrong.
Clay: Now, in many other areas of life, I fully agree, you probably shouldn’t always be expecting and looking at, “Oh great, worst case scenario, worst case scenario.” That wouldn’t be healthy, but as traders, it’s a balancing act. “Well how much here, how much there.” That is why trading is challenging, because it’s a mental battle, back and forth, back and forth. So yes, we got to make sure that if a worst case scenario happen, we’ll be okay. But, you don’t want to go into it expecting, “Well, I’m a terrible trader.” You got to have some confidence. You definitely have to have some confidence.
Clay: Number four, the fallacy of fairness. “In the fallacy of fairness a person believes that every situation should be determined by what is fair. Now I struggle, I get it and I agree with her talking about here. But just in general, this one has never made sense, because well who is defining fair. Fair is a very subjective term. What you may think is fair may be totally fair or unfair to somebody else and maybe both people are right and wrong based on their positioning within whatever is trying to be defined as fair. Now, in a game, yes, you can make things fair, that’s what rules are for. So therefore, hey, this is fair, everybody has agreed to what is fair, this is fair.
Clay: But, in many other areas of life, I mean fair is very, very subjective, and that’s how it works in trading too. “Oh, that wasn’t fair that that happened.” I mean, you know who it was fair to? The person that made money. Because remember, every trade has a buyer and a seller. Somebody is right, somebody is wrong. So you say, “Oh, that wasn’t fair. I don’t know, go tell that other person that was right.” Just like when you’re making money, guess what? Somebody else could be saying, “Well, that wasn’t fair.” “Well from your perspective of course it was, I had the better trade plan. I had the better thesis on why I thought what was going to happen was going to happen. It was totally fair.”
Clay: Maybe you lose money, and you know what? The other person makes money, and guess what? You put in 10 hours to put that trade plan together. The other person woke up, opened up their Robinhood app, made a trade, and then they just happened to luck out and make money.
Clay: You know what? I would agree that’s probably not fair towards you, but you know what? Who cares? The market don’t care. It is what is it. Life isn’t fair, and the markets are not fair all the time. But again, how do you even define the word fair. All the matter of perspective.
Clay: So to go through this one, “Example, you’re bitter that colleague got a promotion, and you didn’t. You complained to yourself that it isn’t fair. She really shows up to work on time, and I probably work much hard than her. But guess what, as you probably heard, or as you were probably told several times as a child. Life isn’t always fair. When you engage in the fallacy of fairness, you’re more likely to wind up feeling angry, resentful, or hopeless.”
Clay: To which yes, that’s why you got to be very, very aware of looking at things to what is fair and what is not fair in the world of trading. Because if you deem something is not fair, fair then yeah, then you fear and fair, this is going to be a tongue twister here.
Clay: But, if you deem something is not fair, like I said, I can’t speak the English language, then you’re going to open yourself up to being angry, fearful, resentful, maybe hopeless. And then that stuff can breed into now you’re catastrophizing everything, even though I can’t say that word.
Clay: And the emotional reasoning, I can see why emotional reasoning was number one, because it’s kind of got its tentacles all in these other ones, but you got to just realize that you know what? There could very well be a situation where I put so much time and effort, blood, sweat, and tears into this trade plan, and I lost money on it.
Clay: And you know what? Somebody else who probably just woke up, like I said, opened up their Robinhood app, put in all of two seconds because who knows, they’re just randomly guessing, and they ended up making money, and I was wrong.
Clay: Laugher is a great medicine, I think that’s why subconsciously I’m kind of laughing with some of this stuff. Because that’s what I’ve learned is, really just laugh it off because if it very well may not be fair, but who cares, it is what it is, just laugh and move on. Because if you take hold of, “Well that wasn’t fair.” Then all of a sudden, you’re going to start to open the door to all these other emotions. “Because well, you know I’m not going to do this, or I’m only going to do that.” And then, you start to blame, right? “Well, it’s not fair because …” and then your because’s are all these external forces, and these external forces are blaming somebody else, and remember the problem with blame is if you’re blaming other people, then you can’t learn.
Clay: So I mean, the best thing you can learn is that, sometimes it just doesn’t work out the way you want it to. And it is what it is. Just laugh about it, try laughing about it. Shaking your head, maybe making a joke about it, and then just moving on. Because sometimes, that’s really all you can do.
Clay: And then number five, which I don’t know if it’s the most important one, but it’s one that I see happen way too many times and it’s, it’s very logical. I like it because it does show accountability, but sometimes it’s almost going too far the other direction where it’s too much accountability.
Clay: So number five is personalization. “Personalization involves taking everything personally, or assigning blame to yourself, without any logical reason.” And I like this because we just talk about, you got to blame, you got to blame yourself. But here, it’s saying, taking … Wait a second Clay, so now you’re saying you shouldn’t blame yourself? Well, keep in mind of what I said, “Or assigning blame to yourself, without any logical reason.” Which that’s a very wise statement to end out on that sentence.
Clay: Or else this whole article wouldn’t be making any sense, because number two you’re talking about don’t blame, now all of a sudden you’re saying, “Well personalization involved assigning blame to yourself.” Wait what? But, luckily there’s not a period, there’s a comma, and then it says, “Without any logical reason.”
Clay: Example, “My son got an F on his final exam, and it’s all my fault. I should’ve spent more time helping him study. Psychologists have found that personalization can lead to guilt, shame, and feelings of inadequacy. To work through this cognitive distortion, take a step back and think about what part you played in the situation. Then consider how you might not be entirely to blame. By looking at things from outsider’s perspective, you may discover that there were a variety of factors that play, and that the outcome is not a direct reflection of you.”
Clay: And this happens, okay, this is such a gray area. But, welcome to the challenging world of the market. But, you put together a trade plan, and that trade plan, it meets all your criteria, you follow all your rules. I mean it’s a beautiful set up. You manage it the way you should, and you do everything flawlessly, but you lose money.
Clay: “What did I do wrong?” And you assign blame to yourself. Again, let’s go through, is there really anything logical, is there a logical reason to blame yourself? And in many cases, no. No, there’s nothing to blame. In fact, you can in this situation blame an external force. What external force? The fact that the markets at the end of the day are random. And just because you have something that meets all your criteria and that works most of the time, keyword being, most of the time. Sometimes it’s not going to work. And you know what? It’s actually not your fault. You followed your set up. You managed it the way you should. And it just didn’t work out. You did not do anything wrong.
Clay: In that situation, you don’t need to blame yourself. You just got hit by the fact of the markets are random. There is no such thing as a perfect trader. Everybody loses money, even Warren Buffett has lost money.
Clay: And you don’t need to go start tweaking and turning, and changing your trade plan around, or I should say your strategy around, your system around. It just didn’t work out this time, because there is no holy grail in the market. There is not system that is going to give you 100% accuracy. It just does not exist.
Clay: But this is such a fine line, because in many cases you do need to blame yourself because you shouldn’t have been in that trade. It’s not a strategy that you’re using. Sure, I get it you think that it’s a strategy, but is it actually a viable strategy, no it’s not. So you are to blame, you do need to tweak things. It is logical to blame yourself, but it does reach a point where there’s no logical reason to blame yourself because it’s truly not your fault. You are not to blame.
Clay: It’s just the fact of the matter that the markets are random. And that is something that I see with people that are great, they have solid strategies, they’re making consistent money. And then they’ll make a comment about, “Well, I’m going back and reviewing all my losing trades and seeing what I did wrong.” And I always … It seems like nit picking, but this is exactly why, this whole personalization thing is okay, that’s great, but you have to at least leave the door open to maybe you didn’t do anything wrong.
Clay: In fact, maybe you did everything right and you lost money just because, well the markets are random at the end of the day and there’s no such thing as the perfect system. But to automatically think and to assign the thought of, “Okay, I lost money, what did I do wrong?” That’s a bad premise, because that assumes that you did do something wrong. Whereas this is telling us, I don’t know, logically speaking maybe you didn’t do anything wrong, maybe you’re personalizing it way too much.
Clay: But again, and I realize I’m kind of repeating myself, but this is so important, in some cases, yeah, you know what you did do something wrong, you did something very wrong. I mean if you just woke up and were the person that flipped open your Robinhood account, and even if you made some money, you know what? In that situation making money, you could’ve very well still done something wrong. And, you need to be very aware of that.
Clay: So it’s one of those fine lines, and I wish I could say I had some sort of magic pill or some sort of … First you do this, and then you do this, and then you do that, and then you know that okay maybe it’s truly not your fault.
Clay: Now if you’re sitting there saying, “Oh, it didn’t work because of this, that, because some guy did a video chart analysis on it.” At that point, it probably is your fault, because that tells me you really don’t have a strategy other than probably randomly doing things or randomly buying somebody on social media said it was going to the moon.
Clay: But if you are somebody that’s been consistent, you’ve seen your account grow, you’ve seen your account grow, and you’re consistent. And then you’re consistent to that much more.
Clay: Just remember, don’t … I mean, you want to hold yourself accountable, but you don’t want to take it too far. You need to realize that. You know what? I really did, I did everything right, that was a great set up, and it just didn’t work out.
Clay: And this is the reason why as part of my coaching program that I offer, and when we do the live classes. Sometimes I do put in losing trades, where I find … At my core, these are always my favorites. They’re not the fun ones, right? The fun ones are the examples where it works out in the way I have it kind of structured in the class itself. Everybody makes money, everybody is feeling good about their ability to put together a trade plan, that’s great.
Clay: But, you got to keep things real. So once in a while I’ll find the perfect, beautiful set up, and I mean we go through it, “Oh, that looks great. Oh yes, that looks great. That is very logical. That is, I mean, that is a great entry point. Oh, that would be a great area to put a stop/loss. Oh yes. Oh yeah, that’s definitely a trend, so we are going with …”
Clay: And everything is so beautiful. And like I said, the way I have it structured is people are … because they’re live, so they’re interacting with me real time. But, they don’t know what’s going to happen. I know what’s going to happen, but the way I have it structured, again, is they have no idea.
Clay: And everything gets mapped out and then all of a sudden we go through it and everybody ends up losing money. Not a lot of money, because part of it is let’s make sure we’re managing our risk and keeping our risk under control. But, and I always kind of like a broken record. “See, you know what, sometimes, and I never realized that I was talking about personalization, I’d never really heard that term before. But apparently that’s kind of the lesson that I’m trying to teach at that point. Is you know what? Just because you have a beautiful, beautiful set up, and all of your trade plans were logical, and good job everybody, I mean everything we were doing made sense. That was so beautiful.
Clay: But, sometimes the market just say, “I don’t care. No.” And it’ll just step on your trade plan. You are not to blame though, it was good, everything was good. Everything met criteria, everything was logical. But you know what? There’s no such thing as a perfect system, there’s no such thing as a perfect strategy, there’s no such thing as a perfect tool. Because at the end of the day, the markets are random. Granted we can leverage things in our favor and stuff like that.
Clay: But, that sometimes where you got to be very careful with this personalization thing and it’s without a doubt very gray, it’s not a black and white type thing. And I mean, just think about how gray this has all become. Because at one point we’re saying, you definitely need to blame yourself, and now I’m sitting here saying, well there might be times where you don’t need to blame yourself.
Clay: So when is when? When is what? What is when? This that, whose she? Who’s on first? Things can get really complicated. But that’s why you got to start with always going back to the importance of a trading strategy.
Clay: Because when you have a strategy, and this strategy has rules, this strategy has criteria, this strategy … I’m not necessarily saying you have to form a checklist, but as a former process engineer, I’m a big fan of checklists and flow charts and all that sort of good stuff.
Clay: But when you have documentation where you can look at it, and you’re just getting started, yeah, I mean listing things out. Whether you write it down or just type it on a screen, and you go through it. At least at that point, you have a baseline that you can work from. Where you can say, you know what? I literally did everything that I’m looking at so in this situation, I’m not to blame. Now, of course the tricky part becomes, I don’t know if what you wrote down is actually smart or wise. But assuming it is, and how do you know it’s smart or wise, well I don’t know has it been giving you some consistent results?
Clay: And if it has. Then yeah, you can start to narrow that down and say, “Yeah, that actually is a good baseline to work from.” And this is also why the world of free education can get very, very sloppy, very, very messy. I’m not saying everything out there is bad information, that would be very misleading on my part.
Clay: My point is, is that there’s so much information it can be so misleading, and you’re trying to form stuff together all it takes is, let’s just say you have a checklist of five items, even if a half of those items is wrong, well that’s enough to ultimately rip apart everything. But, when you don’t know what is wrong, because there’s so much information and there’s just so much overwhelming stuff out there. It can be very hard, am I personalizing right now? Or should I be blaming myself right now?
Clay: And then you start to doubt yourself, and then because you’re doubting yourself, now all of a sudden you’re going into the, everything is going to be a catastrophe, they can spin out of control very, very quick.
Clay: But these are the five things that again, are not successful traders as I was using, but just successful people as the name of the article says.
Clay: But for us as traders, these are the things that we need to be aware of. These are the things that we need to understand about our minds.
Clay: So the next time you’re out there, and you’re sensing, just think. Is this … The way that I’m feeling right now, the way I’m looking at this, am I looking at this because of some certain way that I’m feeling? Or am I looking at it the way that I should be? And again, that’s the power of having the true strategy of having the checklist where you can look at it and help kind of distinguish, I don’t know are these feelings? Or, is this just being based in logical?
Clay: And from there though, you want to make sure that you’re blaming yourself when you should be blaming yourself. But, if you shouldn’t be blaming yourself, well then don’t blame yourself because the last thing you want to do is to personalize something and then all of a sudden take that personalization cause you to start tweaking and changing a strategy.
Clay: That’s actually a great strategy, and doesn’t need to be tweaked because the only reason it didn’t work is sometimes the best beautiful set up is not going to work out.
Clay: So hopefully you enjoyed this. I found this to be very, very beneficial. And like I said, I’ve talked about all these in one way or the other over the past several years of the podcast. But, I don’t think I’ve ever, maybe used some of these terms such as personalization or the fallacy of fairness or stuff like that.
Clay: But, I’m glad we now have some kind of terms to assign to them so that I know that these voices in my head actually have real cognitive distortions as they’re called. So be aware of those. Don’t let your reality get distorted, and have a good solid baseline for yourself.
Clay: But hopefully you found this helpful, and hopefully, if you have any other … There’s something else I wanted to say, just remembered it. If you do have any other suggestions or recommendations for these solo podcasts, or if you’ve seen articles and you’re like, “Oh, wow that could really be aimed at traders.” Like I said, it doesn’t have to be a trading article. It can be something like this where they’re just talking about the human mind in general, but I mean, it pertains to trading. Please send those to me and I can do this, because these are the things that to me really help people out.
Clay: Not the talking to somebody else, I mean, I fully believe that talking with other traders helps people out, but I think having these sorts of episodes sprinkle in every now and then can go a long way, because this is practical stuff.
Clay: And I started with this and I’ll end on it. At this point all based in science, all these observations were coming from people waist deep in the data. The surveys, the research studies out there. So there’s certainly a lot of valuable that can take away from this.
Clay: Like I said, if you have any ideas or suggestions, or you come across an article. Please send it my way, and I won’t guarantee that I’ll do it, but I would definitely consider any sort of ideas that may be out there.
Clay: Now before you go, a final few things here. If you are listening to this on iTunes or Spotify, or any of the other podcast players. Please subscribe that way you can be notified when new content is released. And especially if you’re in iTunes, if you could leave a rating that would really go a long way. Especially a written review, those little things help us out quite a bit and I would greatly appreciate it.
Clay: If you’re listening at claytrader.com on the show notes page. Then we would love to hear from you in the bottom right hand corner, there’s a little chat box thing there. So you can click on that, comments, questions, suggestions, all that. Would love to hear from you, always fun to have a message start off with, “Hey, I listen to the podcast.” And it’s great to hear from those of you out there as listeners.
Clay: So hopefully you found this helpful, hopefully you can maybe there’s some light bulbs that have gone on. But if anything, you got to just be very self-aware of this stuff, and if you are, then you’re going to see some positive progress.
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