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A few weeks ago I was in Colorado Springs to visit my friends at Trade Navigator. I asked the founder and president Glen Larson to do a special webinar for Rockwell Club Members only, and he talked about what he learned from from programming and working with some of the most famous traders over the last 30 years.
One of the stories that Glen mentioned in this special presentation was how to “Trade Like Van Halen”.
Here’s what Glen said:
Trade the “Van Halen Way”
by Glen Larson (Founder and President of Genesis Financial Technologies)
Many traders, including myself have had periods of great trading execution and success. I have also experienced these trading slumps, experienced trading mistakes that set me back. I’m sure many of you might be able to relate to these experiences yourselves.
As a result of these times, I found myself wondering if there is a way to identify potential problems in my trading ahead of time. What usually caused these periods of rough trading? I’m not talking about finding the Holy Grail, I just want to be able to see warning signs before these problems begin. The analogy would be the canary in the coal mine. Before the current monitoring systems in coal mines, miners carried a canary around with them. Should the bird become ill, they knew the air was becoming dangerously toxic.
What could you use for your canary or red flags in your trading? I found some useful ideas and realized I don’t think the source of monitoring has to be high tech.
One method could be to use the Van Halen approach in your trading.
During the 1980′s, Van Halen became “notorious” for having a clause in their tour contract. Pages and pages of details were included in the contract. In the middle of the contract was a clause stating that the band wanted a bowl of M&M’s back stage with ALL THE BROWN M&Ms removed. When I first heard this, my initial response was “what a bunch of spoiled divas”. I had grown up hearing the rumor and decided to verify this.
In David Lee Roth’s autobiography, he confirmed that this rumor was true, but then he shared some interesting details that made me reverse my diva opinion of Van Halen.
Roth mentioned that due to the complexity of the tour (think 9 – 18 wheelers arriving with equipment that had to be set up correctly at each venue). The complexity of setting up each show meant there was a much greater chance for technical mistakes that could turn a successful concert into a disaster. They, for example, stated that “There will be 15 amperage voltage sockets at 20 foot spaces, evenly, providing 19 amperes.”
The band had buried in the contract, section 126 the following: “There will be no brown M&Ms in the backstage area, upon pain of forfeiture of the show, with full compensation.”.
When Roth arrived at each new venue, he immediately would go back stage to see if the M&Ms were there and to see if the brown M&Ms were removed. If he found brown M&Ms, he would immediately demand a line check of the entire setup. He often stated that it “Guaranteed, you’re going to arrive at a technical error”.
Turns out the band members of Van Halen weren’t being divas after all. They had discovered a quick and easy monitoring method to see how close the promoter was paying attention to the small details. They didn’t have time to go through and check every socket, plug or wire, but all these small details were significant for a successful concert. Their success was in the small details.
Looking back at my trading, I too realized that it was the small details being ignored that usually led to my rough trading periods.
So the challenge I was faced with was coming up with my own quick and easy warning flags, my own brown M&M warning, my own canary warning system if you will.
As I mentioned, warning systems don’t really have to be that technical. They can be as simple as a daily or weekly check list. This was my case, a weekly check list.
Since every trader is different, you will have to look back at your own trades, and perhaps your trading journal to see if you can identify patterns that began to develop before losing trades or losing trading periods. Once you have the “data”, you can then begin to develop your warning system.
To help you get some ideas, here are my “brown M&M” warning flags. It is a simple weekly check list that I review. The answers are true or false. Here are the items in my check list:
- Am I reviewing my account on a daily basis after the day is over?
- Am I reviewing my trades to see why I bought or sold according to rules and not on my gut?
- Am I following my money management rules for risk and size of trades?
It’s pretty simple, I am paying attention to my warning flags or I am not.
My challenge to you this is to take time to stop and review your past trading. Take time to see how you can establish your own brown M&M warning flags. Look at the small details that warn you if you are entering a dangerous trading time or zone. Don’t just say, that was an interesting blog post, and not do your review. Applying a quote from Buddha to trading, “Work out your own salvation. Do not depend on others.” You are the only one who is able to uncover your warning signs, no one else.
My second challenge; every time you look at a bowl of M&Ms, look to see if there are any brown M&Ms. If there are, smile and remember that you too have your own M&M warning system. (Sorry, you’ll never look at a bowl of M&Ms the same way again).
Remember, it is the simple things like Van Halen’s brown M&M signs that will give us all the warning we need, if we will but put forth the effort to look.
Good trading the Van Halen way,
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