[Red Envelope] Brother Hundredfold reads Chapter 38 of the "Tao Te Ching": Which level are you trading at?

Chapter 38. Original Text

The highest virtue is not virtue itself; therefore it has virtue.
The lower virtue does not lose virtue; therefore it has no virtue.
The highest virtue acts without doing, and there is nothing to claim.
The lower virtue acts for it, and there is something to claim.
The highest benevolence acts for it, and there is nothing to claim.
The highest righteousness acts for it, and there is something to claim.
The highest propriety acts for it, and when they are not met with response, they then fling out their arms and throw it away.
So, after the Way is lost, virtue appears; after virtue is lost, benevolence appears; after benevolence is lost, righteousness appears; after righteousness is lost, propriety appears.
Now propriety is the thin covering of loyalty and trust, and it is the first sign of disorder.
The foreknowledge—this is the flower of the Way, and the beginning of foolishness.
Therefore, the great man dwells in what is substantial, not in what is thin;
he dwells in what is real, not in what is ornamental.
Therefore, go away from it and take this.

In the previous chapter, we talked about how the Way is always without action and yet without anything not done; we stabilize it with the nameless, plain substance, and we do not want to be still. With that, the world will set itself.
We also talked about how the highest level of investing is not to act in vain, not to fuss, to keep things simple and stay grounded, and to be at peace of mind—then profits will come naturally with the trend.

Chapter 38 is the first chapter of the “Virtue Chapter (De Jing)”—the second half of the Tao Te Ching. In this chapter, it divides realms into five levels: Way, Virtue, Benevolence, Righteousness, and Propriety. The further each realm drops, the farther it is from stable profitability—by one full “丈.” And the closer it is to a loss blowup—one step further.

This chapter is very important. You can use it to examine yourself. Today, we still won’t do generic translation of the written/classical versus vernacular. We’ll break down and dissect the layers of “realm” in trading. Each of us can read this chapter and look in the mirror, see which level our trading is currently in, learn from each other, and make progress together.

I. The highest virtue is not virtue itself; therefore it has virtue. The lower virtue does not lose virtue; therefore it has no virtue.

Truly advanced moral conduct and realm never deliberately try to show that they “have virtue.” Instead, they truly possess virtue.
Low-level moral conduct, on the other hand, constantly deliberately clings to forms and worries about losing—yet in the end it has no virtue.

Applied to investing, a top trader’s “virtue” is to follow the trend, act without forcing, know when to stop, and hold reverence and awe.

The virtue of truly advanced trading is to carve reverence for laws and commitment to rules deep into your bones, to blend them into every trade. You do not deliberately advertise yourself, you do not act out of compulsion. You follow the trend naturally, you do not act in vain, you don’t go around fussing—this is the highest virtue that is not virtue itself; therefore it has virtue.

And a low-grade trading state is to constantly cling to superficial forms, to stare at immediate gains and losses, to fear missing any opportunity, and to fear losing even one cent. Inside, it’s all greed and fear. In the execution, it’s full of chasing rallies and killing selloffs, frequent fussing and overtrading. It looks like you’re working hard, but in reality it completely departs from the fundamental trading laws. This is the lower virtue that does not lose virtue; therefore it has no virtue.

There are also some retail investors who refuse to walk the straight, broad avenue of following the trend and sticking to a system, and instead dive headfirst into all kinds of niche secret manuals, magical indicators, and so-called insider information detours. With the simple and effective right path available, they still insist on taking those things that no one can understand and that sound mystical as if they were real knowledge. It feels like only by figuring out those endlessly mysterious things can you truly know how to trade. In reality, it is completely losing the substance for the sake of the details; the farther it goes, the farther it drifts from the Way.

When the realm of trading reaches its extreme, it is the natural expression of rules: the spontaneity of acting according to the trend, not the forced struggle of fighting the trend the wrong way.

II. The highest virtue acts without doing and therefore has nothing to claim; the lower virtue acts for it and therefore has something to claim.

A person of the highest virtue follows what is “without doing.” In the heart there are no utilitarian goals, and no stubborn obsession.
A person of the lower virtue deliberately does “something.” In the heart there is nothing but utility, nothing but desire, nothing but insistence and forcing.

A trader of the highest virtue follows market laws and sticks to their own trading system. They act without forcing, without doing anything in vain. They have no extra obsessions, no forced demand driven by utility. Every trade is a natural execution of the system signals. The mind is calm—not greedy, not impatient. This is acting without doing and yet without anything not done.

But a trader of the lower virtue is full of deliberate doing—deliberately catching bottoms and escaping tops, deliberately snatching limit-up boards, deliberately pursuing getting rich overnight, and deliberately trying to beat the market. Deliberately proving themselves. Their execution is filled with a utilitarian mindset, a win-lose mindset, and stubborn obsession. The more deliberate they are, the more they overtrade. The more they depart from the laws, the more likely they are to incur losses. This is acting for it and therefore has something to claim.

Profits in an account are never obtained by deliberate overtrading or forced games. They come from the fact that we strictly hold to trading rules, follow the market trend, and after acting without forcing, the results naturally get realized.

III. The highest benevolence acts for it and has nothing to claim; the highest righteousness acts for it and has something to claim; when the highest propriety acts for it and meets with no response, then they flail their arms and throw it away.

Benevolence, righteousness, and propriety—each level becomes more outward, each one more deliberate, each one closer to chaos.

Applied to investing, it is the trading realm and level that keep sliding downward:

Highest benevolence: you can still hold the basic trading bottom line. Even if there are some excess emotional trades and misguided actions that don’t comply with the rules, you can still wake up in time and correct in time, so you won’t end up going farther and farther down the wrong road.

Highest righteousness: you’ve already been swept up by the mindset of winning or losing and by obsession. Trading is no longer about following rules and aligning with trends; it’s about insisting on deciding who wins and who loses, arguing about right and wrong. With a strong heart that insists, to prove your judgment is correct, you may even stubbornly hold out against the trend and hard-bet the market action.

Highest propriety: you’ve completely fallen into the mire of formalism, utterly departing from the essence of trading. You cling to outdated, single technical indicators and rigid dogma theories, or you don’t let go of superficial candlestick signals, completely ignoring the market’s core trend and cyclical operating laws. You don’t care at all what market state is right now. In the end, you can only repeatedly lose money in the market.

The farther the realm goes downward, the more you insist on winning or losing, the deeper you fall into formalism, the more you will lose reverence for the market and respect for the laws. Ultimately, you lose the ability to keep learning and keep evolving. In the mire of losses, you sink deeper and deeper.

IV. Therefore, after the Way is lost, virtue appears; after virtue is lost, benevolence appears; after benevolence is lost, righteousness appears; after righteousness is lost, propriety appears.

Only when a person has lost the fundamental Way will they stress virtue.
Only when virtue is lost will they stress benevolence.
Only when benevolence is lost will they stress righteousness.
Only when righteousness is lost will they cling stubbornly to propriety.

This line from the Tao Te Ching reveals the profound reasons why different types of investors end up losing, and why they cannot sustain stable profitability.

The core of trading is the Way—laws. This is the eternal fundamental. What is the Way of trading? It is the market’s core trend, the bull-bear cycle, the underlying operating laws of the market, a complete, systematic, mature trading system, rigid risk-control rules, and a trading philosophy and method of acting according to the season and not acting in vain—knowing when to stop and avoiding danger.

Once an investor lets go of these fundamental “great Paths,” without reverence for the trend and without commitment to the system, they can only step down to what is next best: to stubbornly cling to those superficial indicators, fragmented information, and rigid dogma. And these wrong behaviors are exactly the beginning of persistent losses.

V. Now propriety is the thin covering of loyalty and trust, and it is the first sign of disorder.

Clinging to external forms and superficial rules is a sign that loyalty and trust are thin; it is also the beginning of chaos.

Those behaviors that cling to external forms and superficial rules, in essence, show that reverence for laws and commitment to rules are already extremely weak. This is the beginning of all disorder and losses.

If an investor only looks at the superficial K-line patterns, only looks at so-called magical indicators, and only chases market hot concepts—yet completely ignores an individual stock’s underlying trend, the bull-bear cycle’s position, and also ignores the risk-control bottom line in their own account—then they have no complete closed-loop trading system either. This kind of trading is the first sign of disorder: it means large drawdowns in the account, a complete collapse of mindset, and the source of all evil behind frequent losses.

VI. The foreknowledge—this is the flower of the Way, and the beginning of foolishness.

To chase being a so-called prophet and foreknower at every turn is only the vain show of the Way’s surface—this is the beginning of foolishness.

The dumbest behavior in the market is thinking you can predict every rise and fall. Guessing the top every day, guessing the bottom, guessing the行情, guessing the moves of the main players—always thinking you can buy at the lowest point and sell at the highest point. This is the beginning of foolishness.

We emphasize again and again: the stock market has its own laws, but they only provide a probabilistic edge for operations within certain time-space conditions. Most of the time, it is just noise. No one can predict all rises and falls. That is a vain wish, greed, and the beginning of foolishness—also the beginning of losses.

VII. Therefore, the great man dwells in what is substantial, not in what is thin; dwells in what is real, not in what is ornamental. Hence, go away from it and take this.

A truly strong person stands on sturdiness, fundamentals, and what is real—not on shallowness, formality, or vain show. Therefore, abandon flattery and falsehood, and choose what is substantial and fundamental.

Applied to trading, traders who can survive in the market for a long time always stand on the market’s fundamental laws, core trends, trading systems, and risk-control rules. They base themselves on reverence for the market, and they abandon fantasies of getting rich overnight. They abandon the gambling nature of going all-in in an aggressive “squeeze” mentality. They abandon the wrong pursuit of all kinds of insider information.

Hold onto the solid substance of the fundamentals, and abandon superficial flattery. This is the “go away from it and take this” that a trader must uphold throughout their life.

Chapter 38 is the opening of the “De Jing,” and it is also a mirror for all of us traders—clearly and plainly showing the trading realms and the root causes of gains and losses. If we were to unfold it and speak in detail, even writing 10k words might not be enough. But saying more is useless. Those who understand understand on their own; there’s no need to say too much. And for those who have a fixed obsession and refuse to wake up, no matter how much they listen, they won’t be able to take it in.

In the next chapter, Laozi teaches us the one thing gained in the past: when “one” is obtained, all things are born. The core of stable profitability in the stock market is:守一.