In trading and investing, first principles thinking is a weapon against the biggest enemy: blindly copying market narratives.

Most people:

“Price goes up → I buy”

“Price goes down → I panic”

You should do the opposite: break the market down to its fundamentals and only then make a decision.

🔍 How it works in practice

1. Break the market into fundamentals (not narratives)

Instead of:

“Bitcoin is going up because of the halving, because Twitter says so”

You ask:

Who is buying? (retail vs smart money)

Where is the capital flowing from?

Is there liquidity for further upside?

👉 That means you analyze mechanics, not opinions.

2. Price = only the effect (not the cause)

First principles:

Price goes up because someone is aggressively buying

Price goes down because someone is aggressively selling

So the question is:

👉 why are they doing it and where will they stop?

3. Thinking in liquidity (game changer)

The market is:

a game of liquidity

Which means:

stop losses = fuel 💥

liquidations = fuel 💥

breakout traders = fuel 💥

First principles:

👉 The market moves where it can “collect money”

4. Example (real scenario)

Situation: Price is approaching a round level (e.g. 100k BTC)

Normal thinking:

“100k → breakout → we go higher 🚀”

First principles:

Where are short stop losses? → above 100k

Where are breakout buy stops? → above 100k

What will smart money do?

👉 Push above → grab liquidity → dump

5. You break down every trade like an engineer

Instead of:

“I’m entering because it looks good”

You do:

What needs to happen for me to profit?

Who has to lose?

Where is their stop loss?

6. Investment fundamentals (even deeper)

First principles in investing:

Price ≠ value

Narrative ≠ cash flow

Popularity ≠ edge

Questions:

Does the project generate real value?

Where will future demand come from?

Is this just hype?

⚔️ Brutal section (no filter)

90% of traders don’t think, they just react

Most strategies are copying the past

“Analysis” without understanding mechanics = gambling

First principles:

👉 If you don’t know where your PnL comes from — you are liquidity for others.

SUMMARY:

First principles in trading are:

-thinking about market mechanics

-focusing on liquidity and participants

-ignoring narratives

-asking the question: who is getting engineered here and why?

💙👽