making money instead of just talkingabout it.
“How long have you been trading?” was my first question.
Craig took a bite of his sandwich and spoke with his mouth full. “Fouryears. About as long as John Murphy has been wasting his life at the lawfirm.”
“Why did you want to trade instead of practice law?”
He grunted happily. “Besides the fact that I was at the bottom of mylaw school class and I was interviewing at public defenders’ offices, whilemy classmates were already interviewing top law firms, and I had $100,000in student loans?”
“So you did it as a last-ditch effort when you couldn't .. .”
T": next day, Craig took me to lunch at an outdoor café. He was a bit
33
 
  
 
34 ADVENTURES OF A CURRENCY TRADER
“Oh, not at all. Sorry that I made it sound like this was a job that I didn’twant. But really, this was the only job I wanted.”
“And you knew that from the start?”
He smiled. “Well, I knew it when I walked onto the trading floor.”
“And you didn’t worry about your student loan debt?”
“Nope. I knew I was going to do everything necessary to make it work.Failure was not an option in my mind. I knew there would be bad days. ButI was not going to give up.”
“Were you a good trader from the start?”
“Oh, no. Very no. I was terrible. But,” he added, “I knew I was going tobe a trader. And that is all I needed to know.”
“That is how I felt, too. I knew that I was supposed to be a trader.”
He looked at me and furrowed his eyebrows. “You sure you want totrade?”
“That’s why I’m here.”
“Well, it’s not easy.”
I couldn't agree entirely with him, but I nodded. “I know.”
“And,” he continued, “trading on your own is way more difficult thattrading in a firm. Are you trading stocks?”
“Forex.”
His eyes widened like he didn’t believe me. “Forex? On your own?Dude, you do need help. That’s a Wild West market—you can get cleanedout fast. What kind of leverage are you using?”
“Leverage?”
He laughed. “You're really out there on a ledge, Harry. Leverage iscredit. It’s a way for your forex dealer to loan you money that you don’thave.”
“How’s that?” I hadn’t heard about this before.
“Let's say you have an account of $10,000 to trade with. These crazyforex brokers will let you trade $1 million in currency with that $10,000.That’s 100 to 1 leverage. This means that for every $1 you put up for thetrade, your dealer allows you to trade $100 worth of currency.”
“Holy moley,” I said. “How much is each point worth on a $1 milliontrade?”
“$100 per pip.”
That means that when I was making $10 per pip, I was trading $100,000in currency. That made sense. That meant that I was using leverage, too. Istarted to remember something about getting 400-to-1 leverage at mydealer. I decided that Craig didn’t need to know this.
“At Ernest Wellington, we might use 2-to-1 leverage. That’s it. Wedon’t mess around with crazy leverage. We'd all wash up. We’re not thatgood.”
 
Lessons Learned 35
I didn’t know how to reply to this, so I said nothing at all. Talking abouttrading, even the dangers of it, wasn’t worrying me. It was making me wantto get back to the office to make some trades.
“I am glad you are telling me all this,” I told him. “In your opinion, is itbetter to trade stocks or something else instead?”
He shook his head. “No. You can trade forex. What you trade doesn’tmatter. Whether you trade it with discipline is what makes the differ-ence.” And he gave me some advice that I wish I had listened to muchmore carefully.
CRAIG’S TEN-MILLION-DOLLAR LESSON
 
Me: You said that at first you were not successful at trading. But John toldme that you had a trade on the Euro against the Japanese Yen that An-derson took for you.
Crare: That’s true. That one trade made ten million dollars for the firm.
Me: John told me it was five million.
Crate: No, that’s not correct. Anderson at first bought five million Euroson the trade—but we made a little over ten million dollars on the tradewhen I finally got out. I knew that the Euro was falling back to a solidpoint of support on the charts, and I knew that the economic outlook forthe Eurozone economy was much brighter than it was for Japan, whichwas still in ahuge economic slump and had set interest rates at an unbe-lievably low point. After a brief move downward, the EUR/JPY wasready to pop upward. I had been doing my homework, calling around toother young traders that I knew, and we were all convinced that therewas no way the currency pair could break and stay below 119.00. Thiswas late September 2002. I didn’t have any secret information, but I wasconvinced that I was right.
Me: How did you know you were right?
Craic: Mostly it was my own research. Besides what I’ve already toldyou, I called some analysts around Wall Street, asked them for theiropinion on the British Pound against the Yen, the Swiss Franc againstthe Yen, and the Euro. Everyone was telling me that there was goingto be a sharp sell-off that would end soon. They sent me some chartsthat confirmed what I already suspected—119.00 was a technicallyimportant barrier. Price had a hard time breaking above it in the firstplace. In fact, in the first week of 2002, nine months before, price hadhit that same level and fallen back 300 points in just a few days. Ittook nine months and two weeks to finally break above it. By then it
 
  
 
36 ADVENTURES OF A CURRENCY TRADER
was the last week of September, and price had risen to 122.00, and onthat day that Anderson sat down next to me, price was nearly exactlyat 119.00.
Me: And that’s how you knew that you should buy?
Crate: Oh, heck yes. For sure. I wanted to put my own money in thistrade. I told Anderson all this. He didn’t say a word for the entire time.Just listened to me make a speech. He didn’t even ask any questions. Ilove that man. As soon as I finished, he took my keyboard and made thefirst trade (see Figure 5.1).
ME: So you bought it right at exactly 119.00?
Crate: Well, Anderson did, yes. And then I bought more after that at119.50. Five million more Euros worth. And then ten million more at120.00. And then again and again until I had put five hundred million inthe trade. I was so sure of the trade that with any pullback, even slightones, I added to the winning position.
Me: Then what happened? When did you exit the trade?
Craie: I closed it about two months later. It immediately moved about300 pips in my direction, and I felt like the smarted guy in the world.Then it backed off a bit and bounced around in October and mostof November. Then in the first few days in December, it skyrocketed.My positions were worth millions of dollars, and I nearly threw up onDecember 2, 2002. It moved 200 pips upward, breaking all resistance.I didn’t sleep for four days for more than a couple of hours at a time. I
 
EURJPY - Daily
     
   
Hy braz00hlbi20.00}19a00}ise.c0bisr200bis600biss00
ee meio $$$ aS
Jul ‘aug See ‘bet Vow
FIGURE 5.1 Craig's first trade.
 
Lessons Learned 37
glued my face to the charts at work and called in for quotes aroundthe clock.
Me: Why were you so concerned?
Craie: I couldn't stand to see all that money in profits and not take it. Ihad sat on my hands with a trade that was up by a million dollars or so,and then all of a sudden, every trade moved into ridiculous superprof-itability. Never before had I seen that much money in one place. I un-derstood that if the currency pair fell down again, I would lose all thatmoney. It was nearly the end of the year and I was thinking about whatkind of bonus I could get for having done a ten-million-dollar trade. Ihad taken some other trades during this whole period—lots of short-term trades, and all of those netted out at breakeven. This was myhuge winner.
Me: So you closed it?
Crate: Yes. Super yes. They stood up and gave me a round of applause onthe floor that day. Everyone except for Anderson.
Me: This must have felt really good. My first trade was a winner, too. I re-member that feeling. Why didn’t Anderson applaud you? Didn't thistrade make him a ton of money, too?
Crate: Oh, yes, Iam sure he looked good for having hired me. But he un-derstood that I had just cut off a huge position that was totally prof-itable, that had taken me months to build.
Me: Seems greedy to me.
Crate: Getting the most out of your best trades is not greed. It’s beingsmart. You let your worst trades run to a loss. Why not let your besttrades run into mad, psychotic profitability?
Me: You have a point. Did this one go up even further? Did you regret clos-ing it?
Crate: You bet I regretted it. I had let my emotions ruin the trade. I hadpicked 131.00 as my profit target—with a round number, and a point ofsupport or resistance that the pair had stopped at in 1997, 1998, and1999. If it got that high, it would be the first time in three years that itreached that level. It would stop there for sure.
Me: Did it get there?
Crate: Damn right it did. If I had held on, I could have made a lot moreon that trade. I would have had to hold it for four more months, but Iwould have made an additional thirty million dollars on this tradealone. Forget a round of applause. I would have been promoted tomanaging director or something wild like that. It would have been amonster trade. I really stepped on my own foot on that one. Ride yourprofits, Harry. That’s the lesson here. Learn to ride your profits (seeFigure 5.2).
 
  
 
38 ADVENTURES OF A CURRENCY TRADER
 
EURJPY - Daily
Craig panics, > ||
then sells p
  
} 126.00
Hes
}12400
 
        
} 12300}122.00}121.00
}120.00
 
Craig buys iL
[See Det iow Dec 0
FIGURE 5.2 Craig learns to ride his profits.
Me: I’ve got to ask this again—if you had a profit target picked already,then why did you not keep it?
Crate: I reacted before I thought about what I was doing. In a furious mo-ment of insanity, I pushed buttons on my keyboard, letting my heart doall the trading.
Me: But in the end, when it was all settled, this was an awesome way tostart your job. First few months on the job and you had made the firmten million bucks.
Crate: That’s the other thing. Making money on my first trade at the firmwas probably the worst thing that I could have done.
Me: Huh? Why?
Crate: As I learned quickly, it turned me into a cocky son of a gun.
Me: What’s so wrong with that? You made millions for Ernest Wellington,and you had barely been hired.
Craie: And I thought that I could keep making that much money everytime I traded.
Me: You couldn’t?
Crate: Oh, no. I could not. Not even close. I lost on my next 13 trades. Allof them.
Me: Unlucky 13!
Crate: Luck had nothing to do with it. This was all purposeful implosionof my trading capital. In the next 13 trades, in January 2003, I lost theten million. And then some. By February, I had dug myself a fourteen-million-dollar hole.
 
Lessons Learned 39
ME: What?
Craie: Yep. I got bold when I should have sat on my profits. Think abouthow I made the money in the first place: I planned a trade using allsorts of research. I planned the entry with knowledge of important sup-port and resistance areas. I didn’t put all my trading capital into thefirst position. Instead, I built it up over time. It took me over twomonths of research to put the trade together. I'd been piecing togethermy plan for weeks before I ever sat at the trading desk at ErnestWellington. That’s why I was so confident about it. The planning that Iput into it.
Me: And the other trades?
Crate: I kept buying and selling the EUR/JPY. I thought it had some magi-cal quality—that it had been built just for me and was my new bestfriend. So I took oversized positions, trying to buy it up to 131.00, but Icouldn’t stay in the positions for long because I was trading hugeamounts of capital from the start, instead of building the position overtime. I had no idea what I was doing.
Me: Sounds like you were trying to get back the position you had beforeyou closed it.
Craic: Right. But I couldn’t buy the pair at 119.00 anymore! WhenI closed the big trade, I lost the right to hold the EUR/JPY at a super-duper discounted price. So when I started trading again, I wantedto get all that lost profit, and took monster-size positions. What amistake.
Me: Why didn’t you just go back to planning big, long-term trades all overagain?
Crate: Right. I should have done the same preparation all over again. ButI was angry that I had not made as much money as I wanted! I was upsetand greedy and wanted more. So I started trying to learn short-termtrade, so that I didn’t have to wait so long to get my lost profits back.And then I met my mentor. The greatest trader in the world taught methat the fear of missing out was the second greatest mistake that I couldever make.
Me: And the first?
Crate: Believing my own B.S. Believing that I actually knew how to trade.I didn’t know anything then. I proved it when I lost more than I hadgained in just a few weeks.
Me: Did you get it all back? Could you climb out of that hole?
Crate: Oh, yes. The year 2003 was great by the end. But it was my mostdifficult year.
Me: Can you tell me about that?
Crate: Some other time, yes. There were some awesome trades that year.
 
  
 
40 ADVENTURES OF A CURRENCY TRADER
CRAIG GETS ANGRY
 
Craig stopped talking about his trading at that point. He was obviously stillupset about his huge mistake in his first month. The regular charismaticCraig had turned a bit angry, even, and I could imagine how disappointedin himself he must have been. He expressed his determination that I shouldnever make a similar mistake, and I assured him that I absolutely wouldnot. I decided that before I traded again, I would request a withdrawal of$500 from my forex trading account, so that I could pay off the iPod pur-chase for my wife and make sure that I realized some of the profit. It feltlike the right decision from the moment I made it. I told Craig that Iplanned to do this.
“You will be so happy you did. You are doing what it took me a longtime to learn to do. You are taking your gains. Good for you.” This got himsmiling again. He then changed the subject: “John Murphy told me that youtwo are conspiring to get him an appointment with Anderson about somedeal.”
Inodded. “That's part of it. My end of the promise.”
“Well, if you can work that out, it will be quite a coup.”
By telling me that I was going to have to work it out, Craig let me knowthat if wanted to conspire to get John and Anderson together, I was on myown. That didn’t bother me.
“That would be a sizable legal deal,” Craig said before he bit down onhis sandwich. “Might even keep John at the firm.”
I didn’t know what to say—was John in danger of losing his job? Thatwas news to me, certainly, and I wasn’t going to spend any time delvinginto that problem. Maybe that’s why John was so excited about getting ameeting with Anderson to do the work on the forex fund.
“Well, keeping him at the firm seems like a good idea to me,” I said.
“Really? Is that what John told you?”
“No. I just thought it sounded like the right thing to say.”
“So John didn’t tell you,” he said.
“Tell me what?” Now I was more interested.
“He wants to leave the firm and come down and work with me.”
This made sense. If John got the deal to do the forex fund work, hecould meet Anderson—and then he would be right in line for a job on thetrading floor. I said this to Craig.
“Not really.”
I was confused. “Why not? He would know Anderson; he could get toknow him better.”
“But then Anderson would lose an attorney he really likes, assuminghe gets to know John. And who knows what kind of trader John would be.
 
Lessons Learned 41
He’s my good friend, but honestly he’s not passionate enough, too straightaround the collar, a bit too organized for trading as a career.”
“Too organized?”
“Too organized, too methodical. Not enough feeling. Anderson won'tlike that. John has to plan out every move that he makes. He used to makefour-color calendars for our study groups in law school. He is a planningmaniac. It could help him be a good trader in some ways, but Andersonwon't go for it. In five minutes, Anderson knows if he wants to hire you ornot. All the things that he won't like about John, Anderson will understandimmediately. He reads people instantly. While you're still trying to think ofsomething smart to say, you’ve already been hired or not. That’s why Ihaven’t introduced John to Anderson yet.”
This was bringing up more and more questions. “But wouldn’t John al-ready know this about himself? Haven't you spoken to him about it?”
“Oh, yes,” he replied, finishing off his sandwich, at which point hestarted looking around for something, as if this conversation had broughtto mind a forgotten task. He pushed back from the table a little bit, andbent down to grab what looked like a drink coaster from his briefcase. Heshoved it in his shirt pocket and forgot about it.
He continued: “I talked with John about it. I told him that he was goingto have to let it go a bit, become a bit more of a risk taker. He promises hecan do it, but I can tell he just wants to make the switch because of themoney. Like I said before, Anderson will be able to figure that out beforeJohn barely opens his mouth.”
Ishook my head. How could a lawyer's salary not be enough? “He’s gotto be making plenty of money at the firm.”
“How much do you think he makes?” Craig asked.
“T don’t know. Over one hundred.”
He nodded. “John made more than one hundred his first year with thefirm. He’s making at least two hundred right now, and he is doing wellenough that he is clearly on the path to partner in a few more years—andthen he’ll make at least five hundred grand a year. That’s good New Yorkmoney.”
Thad never thought about it. I had spent a lot of time thinking abouthow much I made, but never very much about how much the attorneys inthe firm were pulling down. Of course I knew they were wealthy. Morethan $100,000 per year meant wealthy to me. But I had no idea that the at-torneys back at the office considered themselves so poor.
“That seems plenty to live on to me.”
“What? One hundred? two hundred? five hundred?”
“Yeah. Easily enough.”
Craig looked me squarely in the eye, and said, “A good trader couldmake that in a month on the trading floor.”
 
  
 
42 ADVENTURES OF A CURRENCY TRADER
A month! I nearly spit up the sandwich that I had only taken a bitefrom. A month of working on the trading floor for $100,000? Was that evenpossible? Was I dreaming? I reached under the table and held my right legdown, which was starting to bounce up and down from my nervousness. Ithought that I might pee in my pants right there. I wanted to laugh outloud, scream, and throw up all at the same time. I had thought that $300per day was good money. There was an entirely different league of tradersout there.
“I never knew,” I admitted.
Craig nodded. “From the moment I met you, I had the feeling you weregoing to say that. You had no idea at all how much traders make. This is notabout the money for you, is it?”
Istopped at that moment. I could tell the truth, and he would think lessof me, or I could lie and he would continue to talk with me, and perhapseven help me. Lying seemed like such a good idea at the moment. I said:“No, it is about the money. Honestly.”
He laughed. “How could it be about the money if you never knew howmuch we were talking about?”
I shrugged and decided to clarify this slight misunderstanding. “It’sabout the money in the sense that I need to do better at supporting my fam-ily. lam hungry for more. I didn’t know what ‘more’ was until I walked ontothe trading floor. I suppose you could tell me that those guys were makingthe same salary I am, now that I think about it. Yeah, you could tell me thatthose guys are all making forty-five grand a year, and I would be like, okay,where do I sign up? Because for the first time in my career, when I walkedonto that floor, it wasn’t about exact dollar amounts. It was about poten-tial. I could smell money there. It was being created by doing things that Idon’t understand, with people I don’t know, with computers I haven’tlearned to use. But I could sense that there was a huge amount of potentialfor me to build something for myself as a trader. Not on the trading floor,necessarily. But trading for myself at the least.”
Craig was just staring at me and listening. I could tell that he likedwhat he was hearing. So I continued, “And I think that I imagined thatthese men and women on the floor were way too unsophisticated to bemaking as much as lawyers. They were . . . wild... down there on the trad-ing floor.”
Ilaughed and so did Craig.
“But it didn’t matter to me—I knew they were making more moneythan I was, or at least I was pretty sure about it. And I knew that they wereon a roller coaster ride at their job. Some of them looked like they were ontop of the world. Others looked like they needed barf bags. But they werefeeling something. Anything! The last time I felt anything at work waswhen I handed a set of files to Herb Johnson’s secretary and accidentallytouched her where her bathing suit covers.”
 
Lessons Learned 43
We laughed. By now I knew that I was overstaying my welcome. I hadasked more questions than I can remember and write about here, and hehad happily answered all of them. He spent his time so willingly with methat day that it seemed like he was paying me back for something that I haddone for him, which obviously was impossible.
“I know you gotta go,” I told him.
“Yes. I do. We’ve got some economic news coming out at two. Fomseeinterest rate decision.”
“Fomsee?”
He spelled it out: “F-O-M-C. Federal Open Market Committee. AlanGreenspan and Company of the Federal Reserve make a decision onwhether to raise interest rates. This decision—even no decision—canmove the dollar 100 points in sixty seconds.”
That might not have sounded thrilling to any of the people sittingaround me. But now I considered trading my future, and I was determinedthat as soon as I got back to the office I was going to log on at my desk, andspend as much of my employer's time as possible trying to find out whatthe FOMC said about interest rates and how it moved the U.S. Dollar.
Ithanked him for meeting with me.
He nodded and said that a few years before, someone had done thesame for him, and he owed it back. So that’s why I had the feeling that heowed me something. Well, it wasn’t me, but it was someone else. Maybe ithad been Anderson?
We shook hands, and he started to leave. But before he left, he reachedinto his coat pocket and reached for the drink coaster, but then hesitated.He was thinking deeply.
“What's up?” I asked.
“I have a card for you.” He was really thinking hard about this one.“But I don’t know if I can give it to you.”
Was it a business card from the human resources people at ErnestWellington? Another contact? Craig’s mentor or friend? He was hookingme up! Of course, I wanted to play it cool and not seem so anxious that Iscared him off.
“It’s okay if you can’t for right now,” I lied to him. I was probably will-ing to kill him right then and there for the card, but I knew that a homicidewas going to look bad on my employment record, and probably affect myability to get back to the office in time to trade again.
“Well,” he replied, “Technically, I shouldn't give it to you right now. So Iwon't. Just know that when the time is right, I have a friend that I want youto meet. He can help you. He helped me. I still have my job today becauseof him.”
“Anderson?” I guessed.
He nearly choked on a laugh. “Oh, gosh, no. Not Anderson. Not anyoneat the firm. Someone else.”
 
  
 
44 ADVENTURES OF A CURRENCY TRADER
I felt stupid for suggesting that Anderson was his secret mentor but re-alized that it didn’t matter. Now I had a plan and at least a view of the pathahead. I couldn’t have the job interview today, or maybe tomorrow. Butmaybe in a week or two. And the name on the card? I would know it soonenough. Maybe I didn’t need it anyway. I was doing all right with my tradingalready.
“I understand that now isn’t the right time. Hopefully, we can talkagain,” I suggested.
He agreed that we could meet again soon. Then he scribbled words ona napkin, handed me the napkin, and it said:
Rule Number One: Don’t Become Cocky
While I stood staring at the words, Craig raced off to trade. Before heleft, he put cash on the table for the bill and said, “I'd stay longer, but I’mone of the only guys on the floor up there that knows how to read that re-port in sixty seconds. Last month I banked over 200 points on this report.”
“200 points?”
“Tt’s not about the money. But it meant over a million in profits in thefirst two hours after the minutes were released.”
Craig then rushed away. And I also wanted to get back to the office.The FOMC interest rate decision was going to be out in 40 minutes, and Ineeded to be ready.
 
 
A Turn forthe Worse
 
me when I returned to the office and explained it all.
“Craig is a Supertrader, with a capital S. He might be the best traderunder 40 years old down there. He personally makes more than $100,000every month. For himself. That’s his cut. He could probably make a milliondollars for himself this week on this FOMC trading stuff. They love himdown there.”
“Tm surprised that he took the time to meet with me,” I said.
John shook his head. “I’m not. That’s the kind of guy he is. He helpedpeople put resumes together in law school and left his for last. He probablywalked away from some great trades today by talking to you. He eats lunchat his desk every day.”
Ilooked at the napkin and showed it to John:
| x know it at the time, but Craig wasn’t just a good trader. John met
Rule Number One: Don’t Become Cocky
John laughed. “I’ve got one of those, too. And he’s right. 've madesome bad mistakes in my trading by being too cocky.”
Yeah, right, I thought. Whatever. If I was making $100,000 per month,Td have my shoes shined at my desk and my wife would have a hundrediPods. I’d work for a month and take the rest of the year off.
I wondered if John had met Craig’s secret mentor. From the way thatJohn was looking at me, I got the feeling that he was wondering if Craighad mentioned this same friend. I wanted to talk about it with John, but we
45
 
  
 
46 ADVENTURES OF A CURRENCY TRADER
had the FOMC report in just a little while, and I decided that I needed to getmy trading account up and ready.
“So are you trading still?” I asked, hoping to get a bit more informationabout John’s plans.
“Yes. I’m having some trouble pulling the trigger on my trades. Some ofthe best ones in fact. But it will pass. I am down for the year still, but Iamconfident that will change. And you?”
“T only have a small account. But it’s positive right now.”
“How much?”
“I don’t know,” I answered. And then I calculated the percentage gainin my head. “Seventy percent so far.”
He nearly choked. “Seventy percent? Your account is up 70 percent forthe year?”
What was the big deal? At the rate I was going, it would be up 100 per-cent by today. I told him, yes, it was up that far but I really still had a lotto learn. I felt badly that I was doing so much better than he was doing.Now I felt my leg start to shake a bit. I wanted to start trading again assoon as possible. I had profits to make, and all this talk was drivingme crazy.
I raced back toward my desk, thinking about how great the day hadbeen. A great day in a great week in what was going to be the most Amaz-ing great year of my life so far.
And now I was going to trade.
Or at least that is what I thought I was going to do. Scott Needlewaywas standing at my cubicle when I got back from lunch. He did not lookhappy.
“Herbie is pissed and wants to see you now.”
I didn’t care if Herbie was experiencing chest pains and shortness ofbreath. I was going to be trading for the next half hour and there was noth-ing that could be done to stop me. Scott did not share my enthusiasm.
“You should see him now. He’s not happy.”
I shrugged it off. “We both know it’s just another missing documentand that he’s doing twenty-five things at the same time right now. He won'teven care