Trading Hell -- A Sad Jekyll and Hyde Tale  

Published in 1866, Robert Louis Stevenson's novella The Strange Case of Dr. Jekyll and Mr. Hyde was a masterpiece that dealt with the duality of our natural selves being both good and evil. For millennia philosophers, religious leaders, and thinkers of all political, national, educational and theological stripes have debated whether man is inherently good or evil or, as Mr. Stevenson put forth, both. I would contend that we are both, and it is the struggle to overcome the evil that defines our existence. It is the hope, indeed the promise that we can overcome evil, that makes life worthwhile. Indeed, it is the love reflected in a child's face and the bright faith in a better future for that child that define the pinnacle of joy for most of humanity.

But I digress.

This is a blog about trading good and trading evil. I confess to succumbing to trading evil. The trading week ended May 1 (2 weeks past) was entirely dominated by my Mr. Hyde trading persona.

My children call this persona Chuck. Chuck is the person that yells at them to do unreasonable things. Chuck is the person that is irrational, angry, rude, and otherwise evil. Daddy, however is loving, cheerful, generous, and a joy to be around.

In trading, Chuck is brash, self-conceited, over-confident, fixated on a particular outcome despite all evidence to the contrary, and completely beyond reason. Once Chuck is in control of trading, no amount of risk is too great. He becomes certain that price is going to a certain level and any opposing movement is just an unexpected pull back that will come around to his determination of the future. At a point Chuck will become desperate and compound his investment by doubling down. He will move from a reasoned position to a maniacal losing position and short of outside intervention, nothing can prevent him from a disastrous result.

In my case, there are warning signs of the emergence of Chuck. I am of the firm hope that Chuck can be contained, controlled, and even banished by several key steps.

First, recognize that Chuck exists and will always be lurking in the shadows. Such an acknowledgment keeps one humble and in the proper defensive frame of mind.

Second, allow someone close to you to monitor your trades and trading progress. This person can step in and cut Chuck off at the knees before too much damage is done.

Third, never enter a trade unless you know these three things:

1. Why you are entering the trade
2. What is the profit target
3. What is the stop price

Fourth, request (or insist) that the person close to you ask you for those three things. That person can intervene if the answers are not certain.

I will elaborate on stops and how to use them in a subsequent post.