I let it go. It disappeared so fast. I can’teven talk about it.
Harvey: Harry, sit here on the curb and talk to me for just a few mo-ments.
Me: [silence]
Harvey: That’s better. That’s the reasonable Harry Banes that I know.
Me: [silence]
Harvey: Maybe that was the last trading you'll ever do. That’s a possibility.But I gotta talk to you about this. You’ve got to come to terms with whathappened.
Me: Okay. I’m willing to do that. I am willing to listen.
Harvey: First of all, let’s look at what just happened in the restaurant.How was that like currency trading?
Me: I suppose that this morning I engaged in the dollar auction game.
Harvey: Or the pip auction game.
Me: Right. The pip auction game.
Harvey: Did you notice that Jimmy and Marianne started off thinkingabout how much money they were going to win? They were thinkingabout how they could outsmart the other person and get a discountfor a $100 bill. They wanted to spend the least amount of money forthe greatest amount of money, and they put very little thought intotheir bidding.
Me: That sounds familiar. It sounds like what I did today. Just withmy trading account. I didn’t want to end up a loser, so I kept trading,hoping that I could end up a winner, no matter how much I lost alongthe way.
Harvey: Right! Perfecto! This is the next lesson. When you trade like youdid this morning, you are chasing after money, no matter what the cost.It was only important to you that you did not have to look like a loser.
 
Breakfast with Harvey 139
Any amount of gain would be acceptable. Remember how just a shorttime into the dollar auction game, Jimmy and Marianne lost sight of themoney that they wanted to gain? Then they started to worry only aboutnot being the loser.
Me: Yes, I did notice that. I realized that they didn’t want to look bad. Eachone didn’t want to be the one that had to pay something for nothing.This morning, when I was trading, I would have been happy to earnback anything at all. When I had $1,250 left, all I wanted back was an-other $1,250. It was like I was trading to make up for my previous trade.No focus at all on whether the next trade was truly a good idea. Just to-tally wanting to make back what I lost.
Harvey: Any trader can fall into this trap. I call it the pip auction game.Even bank traders can fall into this. Every trade you take is simply anopportunity to bid for pips! You make a bid—
Me: In the form of margin.
Harvey: No, not really. You think that’s what you're risking, but it’s not.What are you really risking when you take a trade?
Me: I’m risking a loss. The loss of capital if the trade doesn’t work out.
Harvey: And what was your risk threshold today?
Me: I didn’t have one.
Harvey: So your risk was infinite.
Me: Yes.
Harvey: And your profit potential? What was your profit target on thesetrades?
Me: Well, for some of them it was determined, and for others I didn’t havea profit target.
Harvey: So you were willing to bid your entire trading account for thechance to win an indefinite amount.
Me: That sounds horrible.
Harvey: And it sounds like the truth.
Me: I remember what you said about George Sisler and his first experi-ence managing money. I don’t want to compare myself to a successfultrader like George, but this does sound familiar. At a point, he stoppedknowing what he was in the trade for—and he kept the trade open justto not lose. He was, for a while, willing to lose an infinite sum of moneyin order to win an indefinite profit.
Harvey: You remember George now! But you did not remember him thismorning.
Me: I did forget George completely.
Harvey: That’s because it happened to George! Now we're getting some-place. When you become a great trader, these lessons will not be far offin your mind. You'll remember what you did this morning much moreclearly than what happened to George.
 
  
 
140 ADVENTURES OF A CURRENCY TRADER
Me: I am not sure I am ever going to become a great trader. I don’t thinkI’m ever going to trade again.
Harvey: Oh, you'll trade again.
Me: I don’t have any money to trade with.
Harvey: Yes, you do.
Me: Iam not going to touch that money. I have to live off that money whileI find a job!
Harvey: Yes, you have to live off that money. You do have to find a job.Those things are true. But it doesn’t mean that you won't ever tradeagain. Look at George. See how he’s doing. He lost over $100 million inhis bad trading experiences. Can you top that story?
ME: Not really.
Harvey: Exactly. You still haven't even started out. You had your first bigloss. You can still do this.
Me: But you told me that you weren't going to continue to work with me.If I were you, I wouldn't.
Harvey: I said that because you lost a lot of trust with me. And it stillmight be true. There are some important things that you are going tohave to do. And if you do them, then we can work together again. But itwon't be easy. And this is where 50 percent of all the people I work withtotally give up.
Me: I don’t want to give up.
OMELET AND HUMBLE PIE
 
“What is your first concern, above everything else?” Harvey asked.
We were back inside the diner and I was eating a Mexican omelet. Ittasted just as good as it was supposed to. If Harvey hadn't stopped me onthe street, Iam sure that a lot of bad things would have happened—it’s notinconceivable that my marriage would have ended over this. It didn’t(more on that later). It’s probable that I would still be working for someoneelse today. Which I am not doing. It’s possible that I would have donesomething drastic. I didn’t.
Instead, we were inside the Utopia Restaurant and I was experienc-ing a frontal pipotomy, a not-so-delicate surgery to remove all of myridiculous assumptions about how to become a successful trader. Al-ready this discussion had freed me from some of the weight of what I haddone to my trading account: I realized that other traders, even superprof-itable ones, had experienced similar lapses of trading sanity. EvenGeorge Sisler recovered well enough to eventually run a multibillion-dollar hedge fund.
 
Breakfast with Harvey 141
With Harvey’s help (if he would still work with me), I could see myselfdoing better one day. Not making the same mistakes. Perhaps even manag-ing money. But that was far off. Now, instead of thinking of the next trade,or imagining that I could follow along with Harvey’s or Hank's or Craig’s oranyone else’s trading, I concentrated on how I would change my thinkingfirst. I told this to Harvey.
“My first concern,” I said, “Is that I change my way of thinking. That Ichange my mind-set. I have let myself be guided by my greed, or my emo-tions. I don’t want that anymore.”
“You want discipline.”
“Yes. I do. I don’t ever want to find myself in the same position I was intoday. Ever again.”
“I have a secret for you, then,” he told me. And he leaned in closer.Then he said: “There is no secret.”
He sat back and waited for my response.
I didn't offer one, so he started again: “There is no secret to obtainingdiscipline. There are ways you can increase your self-discipline. But thereis no secret formula.”
“But there has to be a way for me to do something about my lack ofdiscipline. I need something. Anything. What did the other traders youworked with do? It’s not like George woke up one day, said, ‘Well, I'm neverholding onto a trade that long again,’ and then was over and done with it.”
Harvey simply looked back at me for a moment or two. “Really?” hethen asked. “That's not how it went for George Sisler? Why don’t you tellme what happened with George? If he didn’t wake up one day and make adecision to change for the better, then what did he do?”
I didn’t have an answer. “I don’t know,” I admitted. “I just figured thatyou would have some sort of action plan for a guy in my position. With myproblems.”
“J have an action plan, Harry,” he replied. “I’ve got one. But it presup-poses that you are fully committed to changing your life. I can’t force youto have discipline. I can’t live inside your body, or push the buttons on yourtrading platform, or sit in your house all the time and tell you when to stoptrading. I can’t force you to exercise, to stop hiding things from your wife,or to never risk losing half your account on a single trade. I can tell youthose things but I can’t make you do them.”
“That does make sense. But where does that leave me?”
“Tt leaves you with yourself. That’s why I don’t want to work with youright now. It’s why you’re going to be on your own for a while. You’ve earnedyourself some downtime. We could have made a huge amount of progress inavery short period, but we’re going to back it up. lam going to move on andwork with a fellow named Larry Ho, in Topeka, Kansas. He’s a commoditiestrader and he’s nearing the absolute destruction of his trading account.”
 
  
 
142 ADVENTURES OF A CURRENCY TRADER
“Please stop him before he does it.”
He raised his voice: “Harry! I’ve just finished telling you that I am notgoing to be your conscience. You've already got one! I have been workingwith traders for more years that you would believe. I am not in the busi-ness of becoming your mother. If you want to torpedo your trading ac-count, then do it! Do it and get it over with and you can move on with yourlife! But I am not going to step in and hold your hand. Otherwise I'll nevertrust you. If you are going to do this, you have to do it on your own. Youhave to be trustworthy.”
“Thaven’t been worthy of anyone’s trust. I get it. I really do understandthis time. I still hope that Larry doesn’t torpedo his trading account, asyou said.”
Harvey sighed. “Me too, Harry Banes. Me too.”
This gave me an idea. “I want to ask a favor that I don’t deserve, Har-vey. You can say no if it’s not appropriate.”
“All right,” he answered. “What is it?”
“I want to talk to Larry Ho if he does not savagely destroy his tradingaccount.”
The request surprised Harvey. But he answered immediately. “No. Ab-solutely not.”
“Why?”
“The two of you talking together? That would be like having two hurri-canes mesh with each other in the Atlantic Ocean before hitting New YorkCity. You would be a terrible influence on each other. Who knows whatkind of trade ideas you would come up with.”
“What if I spoke to him with you present? Like on the phone?”
He thought for a moment. This suggestion warmed him up to the idea.“Or in person. Then I could cut you off.”
“Sure. I can’t afford a plane ticket to Topeka.”
He had an answer for everything. “But Larry can definitely afford aplane ticket to New York. I'll think about it, Harry. I promise to do that. Butfirst we’re going to dive into the next law of trading, and then Iam going toleave you for a week.”
“Tam ready.”
MY PERSONAL DAYLIGHT LIMIT
 
Harvey: Harry, how much of your account do you think it’s okay to lose?
Me: None?
Harvey: No. That’s a lame answer. Of course you're going to have to losesome money in the course of ordinary trading. But how much is too
 
Breakfast with Harvey 143
much? In percentage terms, tell me when you think a trader ought to getout and stop trading.
Me: This is going to come as no surprise, but I have never thought of thisbefore.
Harvey: Most traders never consider this. But remember when we talkedabout George Sisler, working at the bank? George had a Daylight Limit,which was supposed to be a loss level at which he would be instructedto stop trading.
Me: I do remember that now. And it would be expressed in terms of apercentage of the trading capital lost. When he reached a certainthreshold, it would stop trading. Or he would be forced to stop trading.
Harvey: I am going to repeat again one of the only advantages thattrading in a bank has over someone like you, Harry. It’s a forced Day-light Limit. If you had been trading in a bank this morning, younever would have been able to draw down the account so far. Yourmanager would have known you were drowning in losses and wouldhave cut you off. Your trades would be closed, and you would thengo into the conference room and, depending on your boss, you’dget fired, or you’d get some help. But you most certainly would notbe allowed, at Ernest Wellington, to keep trading your account intothe toilet.
Me: [like that. I know you're not a fan of forced discipline, but—
Harvey: Right. I hate it. This is why so many bank traders leave the bank,go out on their own, and have all sorts of problems.
Me: Because they no longer have a boss, right? A Daylight Limit that holdsthem accountable no matter what.
Harvey: The bank has a systematic way of forcing you to discipline your-self. It’s institutionalized self-discipline. The bank is an entity fully con-centrated on making the most amount of money possible for the lowestpossible investment. These days, they employ risk managers and math-ematicians to make sure that they are not over-risking. They’re notgoing to let a trader with even the most spectacular track record gocrazy. No way.
Me: All right, then. I’ve got to organize my life or something so that I candevelop the same amount of discipline. I have to say, that it’s attractiveto have some forced discipline.
Harvey: But it’s the easy way out. Do you see that?
Me: Yes. Because it still depends on someone else to take responsibilityfor my wins and losses. If I have a supervisor or someone who pressesthe buttons when I get out of control, then what happens?
Harvey: When that person is no longer available? You've got it! You've fig-ured this out. You don’t want to depend on me. Or your wife or GeorgeSisler or Craig Taylor or anyone else. You want to develop the ability to
 
  
 
144 ADVENTURES OF A CURRENCY TRADER
be a self-directed and responsible trader. It’s a big job, but you can do it.And it starts by changing your mind-set.
Me: Iam ready to do that.
Harvey: Good. Now back to the original question. How do you knowwhen you have lost too much? Let’s back it up and ask some questions.What do you think a trader should do if he loses 1 percent of his ac-count? If he’s trading five thousand dollars and he loses fifty dollars,what should he do?
Me: Umm.
Harvey: “Umm?” is not a satisfactory reply. You get no credit for “Umm.”
Me: Well, I don’t want to be totally off base here, but I think the tradershouldn’t worry about it.
Harvey: Wrong answer!
Me: I knew it. I knew there was some clever answer you were looking for.I feel like I am working in the law firm again. People asking me ques-tions they already know the answers to.
Harvey: Try again.
Me: The trader should worry about it.
Harvey: Better. But why?
Me: Because we're in the job of making money. Sheez, I don’t know, Har-vey! If you're telling me that I can’t lose more than 1 percent of my ac-count on a trade, then I really won't ever be able to trade.
Harvey: That’s not what I’m saying. Think about it differently. Rememberwhen we said that without a Daylight Limit, or a money managementprogram, a good trading system is worthless?
Me: I do remember that. Now I remember. I think I see what you're tryingto tell me. You’re saying that the maximum possible loss is really de-pendent on the bigger picture.
Harvey: And the bigger picture is?
Me: A trading system. If I have a trading system, I know how much thatsystem can lose. I know what it should be losing or winning on aregularbasis. I get it! I can understand this now. I wasn't trading with any setsystem at all, and I had no idea how much was too much to lose. I didn’tcare, even. How in the world was I going to ever know when to stopwith profits or losses? I wasn't.
Harvey: Make sense now?
Mk: Yes. It’s way clearer now.
Harvey: Good. Now, assuming you have a set of rules, a tested system—and we are going to talk about that later—how much is too much tolose?
Me: This time I'll guess—10 percent?
Harvey: Higher. It’s 25 percent. That’s the cutoff point.
 
Breakfast with Harvey 145
Me: The cutoff point? For everyone? No matter who it is? Anyone? Whatabout the tested system stuff?
Harvey: Good questions. Here is what I’ve found. I have worked withthousands of traders who trade from home. I have found that if theydraw down 25 percent of their account, that they are more than 75 per-cent likely to destroy the rest of the account. It’s what I call the 25/75rule.
ME: So, you're saying, once a trader loses two thousand five hundred dol-lars of a ten-thousand-dollar account, he’s likely to kill the whole thing.
Harvey: Exactly. He has a 75 percent chance of demolishing the rest ofthe trading capital.
Me: Why?
Harvey: Give me some reasons that you were willing to continue to losetoday.
Me: Oh! I didn’t think about it that way. I was willing to keep losing for allthe reasons we talked about—I didn’t want to show a loss. I felt thatonce I'd lost a bunch of the money, it didn’t matter if I lost the rest tryingto get back some of my money. I was trading on revenge.
Harvey: Revenge trading is like stacking dynamite underneath your trad-ing capital.
Me: Got it. Understood. I can commit to this. I can promise that I willnever let myself lose more than 25 percent of my account. Now that I'mthinking of it, I now understand that if I have this as a rule, I am auto-matically going to cut myself off earlier than that—I am not going to letit get that far. Because when it gets that far... well... what would I do?Stop trading, for sure. But then what? Call you?
Harvey: Heck no!
Me: Right. You don’t want to be a part of those situations. You don’t wantto force me into anything. Instead of calling you, I'd take a break. That’swhat I would do.
Harvey: For how long? How would you know you are ready to return tothe world of trading?
Me: I don’t know. Seems like if I just stopped for an arbitrary period of time,it wouldn't prove anything. I'd have to do something. Like punishment. Orsomething to ensure that I didn’t do it again. Otherwise—
Harvey: Otherwise, you'd just be planning out the slow bleeding to deathof your trading account in chunks of 25 percent.
Me: I don’t want to do that. There’s got to be something else you want meto say here.
Harvey: In terms of trading, what is the worst punishment you can thinkof?
Me: Telling my wife I lost five thousand dollars.
 
  
 
146 ADVENTURES OF A CURRENCY TRADER
Harvey: If that was the worst punishment, then you wouldn’t have lost it.Right? So that’s not the right answer. What do you fear the most?
ME: Going back to my job. Working for someone else.
Harvey: Right!
Me: Oh, no. I shouldn't have said that.
Harvey: Yes, you should have said that. Because it’s true. You don’t wantto work for Wakeman, Butterball, and Bonehead ever again. Having togo back there and ask for your job back—
Me: No way. There is no way I am going back there.
Harvey: You can deliver pizza instead. I'll let you borrow my 1925Schwinn.
Me: Thanks. But no thanks. I am not going back to the law firm, and Iwould in fact rather deliver pizza on your old bicycle.
Harvey: So I've reached the innermost part of your brain where you storeyour most sensitive buttons. Iam pushing the “go back to work for otherpeople” button right now and you don't like it.
Me: No. I want to trade for a living.
Harvey: You haven't earned the right to trade for a living! Every day, I re-fuse to work with traders who are even willing to pay me tens of thou-sands of dollars. You know why? Because they believe that it’s theirright to trade for a living. But it’s not. It’s not a right. It’s a privilege thatyou earn through discipline. And I will not work with a trader who is notdisciplined. Including you, Harry Banes.
Me: All right.
Harvey: And you know what is going to happen tomorrow when you goback to Wayfarer, Sunshine, and Doodlebug, or whatever the name ofthat law firm is? You know what? You are going to think to yourself,“Gosh, Harry, you could be trading the Euro right now, shorting it at1.2200, but you're not. You're not because you have to earn more moneyto put into your trading account.” That is what you are going to say toyourself.
Me: And Iam going to realize that the money I lost trading actually repre-sents something that I have to work for.
Harvey: It will change the way you think about the money in your tradingaccount.
Me: You're forcing me into this, you know.
Harvey: No, I’m not. You don’t have to go back to work. You can take yourremaining savings and you can trade it. You can start trading it right nowif you want. You can trade the Euro short with me, you can go see ifCraig will talk to you, or if you can get someone else to help you. Youdon’t have to ever do anything that I tell you to do. I am not going toforce you. But I will promise you something.
Me: What?
 
Breakfast with Harvey 147
Harvey: I promise you that if you do this, if you take this first step, that PLnever threaten to stop helping you again. I promise you that you willmake a huge step forward in your discipline. And that before you knowit, we'll be working together again.
ME: This is really hard for me.
Harvey: It’s hard for me to see you in this spot, too. But I am not going tolet you off the hook. So what’s your answer?
Me: ['ll do it. I will. I will go back to Mr. Johnson tomorrow and I'll ask formy job back. I can’t believe that he would ever let me have it back, but Iwill ask. And if he says no, I'll find something else.
Harvey: Anything else?
Me: Right. I will deliver pizzas if I have to. But I will earn back the $5,000that I lost.
Harvey: Agreed. Assuming you shape up this week, I want you to start onthe next law of trading by yourself—it’s the law of testing, and I amgoing to leave you to figure out the details. If you can get that done, thenwe'll be seeing each other again. Now I have to go.
1 SEE HERBIE AGAIN
 
Harvey left me sitting in the booth with a lot to think about. Mostly, I wasthinking about Herbie Johnson tearing my head off and throwing it acrossthe office. I considered checking my passport to make sure it was still validand then leaving the country, rather than facing Herbie or my wife.
Ialso realized that losing the $5,000 could have been something totallyinconsequential. Without Harvey’s help, I probably would have waited aweek and deposited more money. I wouldn't have told my wife about theloss. I could see that without Harvey, I would have seriously depleted allour savings very quickly.
So I decided to show my gratitude to Harvey by not wasting any timeasking for my job back. I hadn’t paid Harvey anything for his time or effortwith me, and I had been nothing but a problem to him so far. By followinghis instructions, at least I showed that I valued and appreciated his help.And I did appreciate the help. Choosing now to ask for my job back, in-stead of waiting another day, proved my commitment to do the right thing.
And getting a job now was the only right answer to the quandary Ifaced. I did not want to tell my wife that I needed to trade more of our sav-ings. We had a limited amount of money and I planned to keep it safe for aslong as possible. My plan was to regain the losses from that morning, evenif it took me two or three months, then start trading again with the moneyI earned, and this time protect it instead of flushing it away. We didn’t have
 
  
 
148 ADVENTURES OF A CURRENCY TRADER
to dip into the savings that way. I had to return to working for other people,I had to face the people who had fired me, and I had to admit that I hadcarelessly squandered a great opportunity to make a lot of progress in mytrading. Honestly acknowledging this missed opportunity was nearly themost difficult thing that I’d ever done.
Traffic was light so I hailed a cab, which got me to the office muchmore quickly, where I could experience the wrath of Herbie more quickly,and then I could forget about that job and instead go to work deliveringpizzas for Bleeker Street Pizza in the West Village. At least I liked theirpizza.
I didn’t have a plan. Or a good reason that they should hire me back.Maybe I could start off by talking to the office receptionist, and find out ifthey had hired someone to replace me. By the time I started up the eleva-tor, I planned to first speak to Christy Matthewsen, the office administra-tor. She’d fire me a second time, or explain to me how very uninterestedthe firm was in my services, thus saving Herbie Johnson the effort and tor-ment of screaming at me.
Fat chance.
As I exited the elevator on Floor 44, Herbie Johnson was standing rightat the reception desk.
“Banes!” he cried. “Just the man I wanted to see. Get in my office.Now.”
 
 
Back toWhere ItAll Began
 
fact, he seemed almost happy to see me. I hadn't ever seen him
happy before, so this was a total surprise and I didn’t know how toact. Walking back toward his office, with him walking behind me, I had thefeeling that I still worked there and that not much had changed.
On the way down the hall, I peered over to the central work area out-side the filing room. There were stacks upon stacks of files to be organ-ized, sitting on my old desk. It was more than I'd ever seen before, evenmore than I had seen after returning from vacation.
“Banes,” he told me when he got me into his office and closed the door.“Let’s get something out of the way right from the start. Did you know any-thing about that dirtbag Scott Needleway selling the Anderson files? Didyou know anything about that at all?”
“No, definitely not,” I told him. “Of course not. If ’'d known somethingabout that, I would have fired him myself. Is that what happened to themissing file? Is that why I was fired?”
He nodded. He then said something nasty about Scott that I won’t re-peat here. He also seemed pleased to find me completely unaware of whathad happened. “It’s why you were fired, yes. It’s why we fired Scott lastweek, too. He was selling letters and depositions from the file to the busi-ness press. We caught him on the phone with a reporter from television.Too bold for his own good at the end. Not too bold after I finished withhim. Now I figure that’s why you’re back. You heard that we caught himand now you want some revenge.”
i erbie didn’t look as angry as the last time that we had spoken. In
149
 
  
 
150 ADVENTURES OF A CURRENCY TRADER
I shook my head. “I haven’t heard anything about it until right now,sir. And I certainly don’t care to get any revenge. In fact, I came here toapologize.”
He grunted. “Apologize? For what?” He motioned for me to sit down infront of his desk, and then he sat on the corner of it, just a few feet fromme, much too close for comfort. At least he wasn’t yelling.
Then I let him know, with his phone chirping in the background, whata terrible employee I'd been for so many years. I explained that I hadn't al-ways given him an honest hour's work for an honest hour's pay. That I hadtaken a few hundred extra 15 minutes at the end of lunch. That I had leftearly and come in late far too many times. That near the end, I had donesome trading on company time. That I had lied to him on occasion. Andthat I was sorry. And then I surprised him and myself by what I said next:“And I want to pay that time back. I owe it to the firm.”
I learned later that, in all of his years as a partner in a law firm, he’dnever heard a staff member say such a thing. He hadn’t ever heard of any-thing like it at all. And he didn’t want to hear it again.
“Don’t ever want to hear that again, Banes,” he told me. His phonebuzzed again. Surprisingly, he didn’t reach for it. He hadn’t taken his eyesoff me for the entire time. He spoke: “In fact, I don’t have much time tocare about your past indiscretions on the job. I’ve got seven associates outthere right now who I ought to fire for overbilling, but I'm not going to do itbecause we have more work than we can handle right now. The Andersoncase has ten attorneys now and it’s a thorn in my side and a mountain offiles. And no one around here has time to hire a replacement. We’ve gotstackloads of paper out there for you to file.”
I didn’t hesitate. “I'd like to come back and help out. I don’t know forhow long I can stay, maybe a month, maybe two. I’ve got to earn somemoney fast, and if you need the help, I need the money.”
He didn’t mention the severance pay. I didn’t either. He grunted: “Idon’t know how much we were paying you, but if you can start right now,Tm sure we can work it out. How much do you want? How much is thisgoing to cost me?”
His phone rang again. This was the longest period I'd ever seen him doonly one thing at one time. He was buckling under the pressure to multitask.
“I can work as a contractor. I can help you find a replacement for me intwo months. You can pay me five thousand dollars a month.”
“Done,” he said, and this time, when the phone rang, he picked it up.“Now get out of here.”
