- 2002: Volume 11, No. 2 Mind Over Money: The Magic Formula

Close but No Cigar
The first step in creating great success is finding the formula that is exactly right for you and your unique situation. Before he found his perfect recipe for success, Hershey went bankrupt so many times that he could have written a manual on how to fail—except that he never stopped until he found the magic formula. Up to that point, despite all of his years of hard work and good intentions, he was not eligible for the kudus that would come from just a minor tweaking in his approach. Once he found that formula, though, the world recognized his "genius." Thomas Edison failed 40,000 times until he found the right filament for the light bulb that made him rich and famous. Up to that moment, he was engaged in a failed enterprise.

When a trader achieves great success, it is usually a result of having found his own magic formula. That formula may look familiar or it may be totally unique to the individual trader, but it is the one that works for him.

Don't Mess with Success
It is one thing to achieve great success, but can you maintain it? The first step in sustaining great success is to not mess up the formula. If it works, and it works brilliantly, leave it alone. Unfortunately, for people who have the motivation to be highly successful, it is probably harder to keep from abandoning the formula than it is to find it in the first place.

Boredom or the need for change and a new challenge can seduce a trader who loves to do research and create new systems. Sometimes, though, a trader is not even aware of his own magic formula or he may forget the magic ingredient or combination of ingredients to his success. When that happens, his trading falls apart and he is at a loss to understand what happened. And sometimes, events occur in a trader's life that change the conditions in his life so much that all the ingredients are still there but the formula cannot work.

On Top of the World
As one of the partners in a very successful trading firm, Ken earned an annual income in the seven-figures. Ninety-five percent of the time, he was working at peak performance. Not only was his professional life picture-perfect, his home life was extraordinary. It is true that his teenage son was a little weird with his green spiked Mohawk and his daughter was somewhere out there in space idolizing the Back Street Boys. In spite of their minor adolescent rebellions, Ken had a special relationship with both of his children. But the center of his life was Karen, Ken's wife of 19 years. Karen was the most loving, supportive, beautiful and intelligent mate a man could imagine and the envy of every man who met her. While Ken was on his long and rocky road to success, Karen supported the family, gave birth to their children, and cared for their home. At my seminar, Ken extolled Karen's virtues. "I am the luckiest man in the world," he said.

That was then but just a few weeks later, Ken met a woman on a business trip who rocked his world. Two months later, he had left his family and moved in with his new love. Five months after that, Ken's life took a nosedive. While his wife sued him for her share of their assets, his new mistress proved to be selfish, demanding and controlling. Her meddling in his personal and professional life created a rift with his partners. Her lack of personal discipline freed Ken from his own life-long pattern of personal disciplines and his trading fell apart. Now, Ken is on a course to financial disaster.

Ken's extraordinary success came after he had finally found his own magic formula that allowed success to flow. His road to ruin resulted from abandoning that formula. In the world of modern science, when a biochemist attempts to duplicate the results of an experiment he found in a scientific paper, he may fail and fail until he finds that magic protocol, that series of steps that he takes in exactly the right way and then, wallah!!! Success! If he attempts to change that protocol in any way, he will once again fail to get his experiment to succeed. The same thing can happen to a trader with a magic recipe for success.

New and Improved—The Benefits of Tweaking...
Does this mean that you can never make changes in that magic formula? Of course not. Conditions that made that formula work can change so that the formula no longer produces results. In that case, you must be willing to update the formula to meet current conditions. For example, market conditions that once made a trading system unbeatable can change so that your system no longer is profitable.

Tweaking means that you are looking for a way to improve an existing formula so that you can benefit from what has worked and find out what can be made more effective. It is the very opposite of throwing out the baby with the bathwater. Sometimes tweaking is necessary for an old formula to keep producing results. For example, your old trading system may simply lose momentum over time and tweaking it can bring new life to its performance. Tweaking can include adding a new ingredient to the mix or modifying behaviors.

If your trading needs tweaking, you can look back over what you have created and check for ways you can improve what you have done. For example, you can look at your back-testing to see what the results would have been if you had done something differently. Suppose that you changed the stop or the size of your trades, or the times you trade, or added an intuitive indicator over and above your technical indicator—what would be the results?

A Cash Cow Gets No Respect
It is true that formulas can be improved, but the delicate balance of success and failure must be considered with each change. My father owned a diner many years ago in New York called the Boulevard Diner. It was a simple diner that served excellent food, and it was the original cash cow. But my father was never satisfied with what he had in that incredible success. He wanted a fancy restaurant. He didn't want a cash cow; he wanted a cash thoroughbred. So, he opened one fancy restaurant after another, all of which failed.

Many years ago, I knew a trader named Derek who had figured out a way to make a very substantial living. He had figured out how to find numerous small clients by giving free seminars through local community centers. Convinced that he was a business genius, Derek decided to branch out. After all, he reasoned, if he could make this much money by working through little community centers, imagine what he could do if he charged money from large clients.

Once again, the cash cow seemed too mundane, too predictable and limited. So, Derek turned his back on the community centers and developed a very sophisticated marketing scheme. The only problem was that it did not work. Despite years of working and reworking his new approaches to marketing, Derek never again reached his former level of success. To this day, he continues to try to find a winning formula. Recently, he mentioned that he had considered going back to his old strategy, only to find that the doors were no longer open to him. He had strayed from the magic protocol and there was no going back.

Family and the Magic Protocol
The old adage that "you shouldn't fix it if it ain't broke" came into being long ago and has stayed in our lexicon because it contains a great deal of truth. Ken, our multi-million dollar trading partner had a magic formula that was more like a herd of cash cows than my father's Boulevard Diner. Despite his public protests of devotion, he had come to a point in his life where he was looking for something new and exciting in his love life. The problem for Ken was that it never occurred to him that his family was an essential ingredient in his magic formula for the great success he enjoyed. Somehow he had forgotten about the amazing self-sacrifices that his wife had made for him, and the tremendous support she provided him. Her hard work at home freed him up physically and emotionally to have the clear head he needed to trade at a peak performance state.

Overextending
When a trader named Josh who derived his sense of security and comfort from living on a fixed income was pushed out of his comfort zone by a new mortgage and a growing family, he stopped trading as well as he did when he felt secure. To function at peak performance, like Josh, many traders need to feel secure and in control. The delicate balance in the magic formula is upset for these traders when they overextend their finances. The irony for them is the fact that they are getting what they thought they wanted, but, in the process, they are sowing the seeds for losing what they have achieved.

What to do With All that Milk?
What does this mean for traders who have found the "magic formula" and begin to feel bored by it or confined by it. Should they never turn in that simple country cow for a much larger, finer, more sophisticated city bovine? Should they live in fear that any changes and/or improvements will ruin the formula? All good questions… they must determine first what the magic formula actually is. Not everything a trader does and not every condition in his life contributes to that magic formula. There are usually a fair number of things a trader can change or improve upon without affecting the formula. In fact, there are usually a fair number of things that can be tweaked to dramatically improve the formula. The problem is that unless you understand what it is that has brought you your success, you are more likely to lose respect for its value to your happiness and success.

The second step is to figure out why you feel a need to make changes. What is lacking in your life? If you need more excitement, perhaps a change in your trading is not the arena for taking new risks but a new hobby may be. If you are feeling a lack of vitality and you think that you need a major change, perhaps an improvement in your diet would help, or a membership in a gym or joining a sports team for adults. If you are feeling that your trading is no longer on target, you may need to take some seminars, read some new books, or find a mentor or coach. If you are feeling dissatisfied with your marriage, rather than break up your marriage and leave devastation in your wake, you could seek marriage counseling or spend more time with your spouse and rediscover what made you fall in love in the first place.

The third step is to work out a plan of action. A plan needs a goal, so you need to verbalize the reason you want to make changes and what you are hoping to achieve. One of the best tools is to redesign your business plan and to continue to update it on a regular basis. This strategy allows you to see what it is that you have done, what has worked in the past and where you want to go in the future. As a result, you will not be flying without radar, simply reacting to a need for stimulation and change.

Conclusion
Successful traders are likely to discover, over time, an urge to change their magic formula without realizing that they are preparing to kill the goose that laid their golden eggs. Rather than take drastic steps that result in sad results, itchy traders can take a series of smaller steps that can bring about positive changes. But first, they need to know what it was that brought them success in the first place and preserve its essence for their future well-being.