How to Trade Like Zorro

. September 11, 2011
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Have you heard this song? "Billy, don't be a hero; don't be a fool with your life."

Tom Sosnoff quotes this song to describe traders who put on too much risk and lose everything when the market goes the wrong way. But is there a Christian heroism that involves taking smart risks?

Simmering ideas about heroism came together for me yesterday while I was watching The Mask of Zorro.

Let me list some of the myths about heroism first:

  • "Heroes take control of their environments."
  • "They bend others to their will."
  • "They never run from a fight."
  • "They take insane risks and glory in it."
Keep these myths in mind as you watch this fight scene from the movie:

Do you see the contrast between Zorro and the myths described above?
  • Zorro doesn't brutally take control of his environment. He doesn't force others to obey. Instead, he sets up situations where people play into his hands. He anticipates what they're going to do and makes plans that seem risky but actually have a high probability of success. "[Captain Love] will come into your circle soon enough. You need not chase him."

  • Zorro is not afraid to run from a fight. He always engages others on his own terms. Sometimes this means running, sometimes it means letting others attack, and sometimes it involves laying traps. He hides in the shadows and shows himself when he's ready. He breaks his attackers apart into small groups and tackles those groups one at a time.

  • Zorro takes smart, well-planned risks. His goal in this particular battle is to strike fear in the hearts of his enemies. He takes the necessary risks necessary without going overboard. He escapes while he's ahead.
Live to Fight Another Day

As a one-man show, Zorro absolutely cannot afford to get crippled. Everything depends on his staying alive. This is a lot like trading. If you depend on trading as an insurance policy or the means to fund a ministry dream, you can't afford large losses.

My own trading strategy allows for a lot of unexpected problems. I know that eventually I'll be wrong, face bear markets, deal with high volatility, and encounter market crashes. I get to pick and choose the right trades for each set of market conditions. I can't control the market, but I can choose trades on my own terms.

There's also a time to run away in trading. When the favorable conditions for a trade go away, I close the trade out, sometimes at a loss. This is preferable to taking the risk of larger losses with no statistical profit advantage to justify that risk. The most important thing is to live to fight again tomorrow.

Don't Be a Hero

People tell me all the time that trading is too risky. But I see those same people spending all of their liquid capital putting 20% down or less on a house. That, to me, is risky: if the house goes down in value or the owners can't make their payments, the owners lose all of their money. They may even end up in foreclosure and then bankruptcy. How will they support their children then?

When the movie ends, there's only one Zorro. If he dies, there won't be a sequel. No one will get the girl. Would Zorro take the kinds of risks that most homeowners do?

Zorro as a Type of Christ

If the idea of Zorro as a trader isn't bizarre enough, imagine Zorro as a representation of Christ.
  • Jesus had the power to take control of His environment, but He took on flesh and came into a sin-corrupted world as a helpless baby.

  • He didn't force others to obey but made His points through intelligent arguments and Scripture. Depraved human beings hated Him for it.

  • Jesus engaged others on His own terms. He answered questions with more questions or complete silence. He told parables instead of explaining things directly. After a while, no one dared to ask Him any more questions.

  • Jesus didn't feel obligated to fight. He slipped away from crowds and sometimes refused to do what people requested. He knew when people were trying to trap Him and only allowed it to happen on His own terms: at the cross.
A better understanding of Christian heroism and the nature of Christ will make us better traders. There's a lot at stake. Dream big, take smart risks - and get the girl.