I couldn’t take credit for the original idea. It oc-
 
EURUSD - 240 min
1.2200 x
}1.2300
 
 
}1.1900
"NIG 31S O01 N22 303 (30d NMS ME 329 NST A Ano (19:00
 
FIGURE 14.2 Harry's entry price.
 
Back to Square One 125
curred to me then that Harvey wanted me not only to explain why the tradewas reasonable, but also to start developing my own ideas. Harvey hadother traders to work with. He wouldn’t be available forever to keep feed-ing me trading ideas that I would go home and justify. Part of what I wantedto do that night was to figure out how to plan these trades on my own.
The books I’d read had a lot to say about indicators—moving averages,oscillators, and so forth. It seemed rational that I would jump into some ofthose. So I added a 200-period moving average as a dotted line. The movingaverage was just what it sounded like: an average of the price over a cer-tain period of time—in this case 200 periods of four hours each. Once plot-ted, I saw that it hovered above the current price and seemed to havestopped the currency pair from rising earlier in the month of April. Perhapsthe average would stop it again and that was a good justification for thetrade. But how could I say that price was going to hit the 200 moving aver-age again? And that it would fall back? That was stretching things a bit.
The books also talked about oscillators. These were indicators thatsupposedly showed when a currency pair would be overbought (and readyfor a move down) or oversold (and ready for a move back upward). Iflipped open to a page in one of the books that talked about the stochastic.That seemed popular enough! So I added that, too, with the standard set-tings of 14, 3, 3. This time I was getting closer. The stochastic was risingand nearing the top. Could it be as simple as that? That I could sell the pairevery time the oscillator reached the top? And buy every time it reachedthe bottom? Perhaps. But there was no way that Harvey was basing his en-tire trading system on something that simple.
The MACD, or moving average convergence-divergence, was an indi-cator of momentum. It was basically a way to follow a trend, built frommoving averages. Perhaps that would provide an extra clue. One of thebooks talked about adding a second or third indicator to confirm what Iwas seeing on the first. That seemed reasonable—getting some backup.Actually, it sounded more than reasonable. It was perfectly clear to me thatany successful trader wasn’t going to base his entire strategy off one indi-cator. No wonder that I had felt uncomfortable with the stochastic alone.Or with just the moving average. So I added the MACD, with the standardsettings of 26, 12, and 9. I didn’t really know what those meant, but whocared? I was trying to justify a trade, not write a book report on GeraldAppel, the creator of the indicator.
It told me nothing at all. I could hardly understand what it meant in thefirst place. Now I had a hill-and-valley shaped thingy in the middle of theMACD and some lines crossing above and below. The lines were under-neath and the hilly shape was sort of flat. Ho-hum. This was worthless. I’dreally rather see the indicator with the hills going down or the lines goingdown as soon as the EUR/USD price hit 1.2200. Maybe Harvey and Hank
 
  
 
126 ADVENTURES OF A CURRENCY TRADER
Doorecker had a computer program that could predict that the MACDwould be topping out or heading for a move downward once it got to theirspecial entry price.
What if I could also find that at the same time the price was hitting the200 moving average and that the Stochastic Oscillator (a measure of whena currency pair had moved too far in either direction) was overbought?Now I was getting someplace. Still not sure that I had enough to justify thetrade, I decided that I would add some other indicators.
The next one that I added was a Fibonacci retracement. I drew a linefrom the highest recent point the pair had reached, all the way to the low-est point it had reached. This then produced a series of numbers in be-tween the high and the low, where, according to one of the books in frontof me, price was expected to encounter resistance, or selling pressure. The50 percent level of the retracement that I drew was right at 1.2182. Now wewere onto something! Perhaps Harvey was watching for price to rise up tothis level, where it was more likely to fail and go no further. I liked this. If Icould show that the Stochastic was overbought, that the price was nearlyhitting the Fibonacci retracement level—I might be able to justify takingthe trade.
Thad plotted a lot of stuff on my charts at that point. Well, that’s an un-derstatement. My chart looked as if a book on technical analysis had ex-loded all over the place (see Figure 14.3).
By this time, I had been working for four hours and my family wasasleep. I hadn’t even heard my wife put the kids to bed. This process hadconsumed me and I was really getting into it. Another candle was forming
 
EURUSD - 240 min
 
 
 
“He She io “Saz Sas aaa aa oO Ta 08
FIGURE 14.3 Harry's first chart.
 
 
Back to Square One 127
but it wasn’t going anywhere. Price was stalling at the 1.2100 mark and notgoing anywhere. I was exhausted. I hoped that I didn’t have to show Har-vey my chart before I took the trade, because I intended to sell theEUR/USD just like he was going to do, and I had my justification.
My wife stumbled in a few moments later and, rubbing her eyes,looked at my chart.
“That looks complicated,” she remarked.
“It does,” I admitted. “I’m not sure I know what all that means. But Ithink it is telling me that the Euro is going to be a good sell trade when itgets to 1.2200.”
“That's the trade that your friend Harvey is going to take?”
“Yes. That’s right.”
“Why don’t you take it now?” she asked.
She had just risen from bed so I could understand why she was con-fused. “The price has to rise another 100 points before I can sell it,” I toldher. “We're going to sell it at 1.2200.”
“If you know it’s going to 1.2200,” she replied, “why don’t you buyit now?”
Then she walked back into the bedroom. I wasn’t sure if she had beensleepwalking or if she really meant what she said. But it made sense! Shewas right! If Harvey was so sure that the pair was going up and then wasgoing to be a good sell, then why not make some money on the way up, andthen on the way down again? Wow! That was brilliant.
I looked at the chart more carefully. Price seemed to be drawn like amagnet to the 200 moving average—it was surely on its way up there allover again. And the stochastic was showing that it was trending upwardand not overbought yet. It had more room to go! And the MACD, like I hadseen earlier, was rising, with the hill on the top side forming just now. Andprice was moving up toward that 50 percent retracement level.
For the next 30 minutes, I added a few more indicators that seemed tobe all telling me the same thing—it was rising upward and I was going to beable to buy it on the way up. So I opened my trading platform. I had $5,500.If I traded long now, I stood to make 100 pips. If I traded $1,000,000 in cur-rency, that would be $100 per pip, for a gain of $10,000. That would be ahuge gain and bring back way more than I needed to pay for a month ofbills. It would redeem just about everything I had done before I startedmaking stupid decisions. I clicked on my trading platform, entered anddouble-checked the numbers, and took the buy trade.
At 12:35 a.., I bought at 1.2098. It cost me $2,500 in margin to makethe trade.
I did not place a stop loss or a take profit order. I just pulled myself upfrom the computer table and stumbled into the bedroom and fell asleep. Ididn’t even get out of my clothes.
 
  
 
128 ADVENTURES OF A CURRENCY TRADER
THE NEXT MORNING: FLAMES FOR BREAKFAST
 
The next morning as I was gulping down a glass of carrot juice, I realizedthat I could have been a tad bit zealous about trading the Euro. I can re-member a splash of carrot juice running down the front of my Wakeman,Butterman, and Bailey “20th Anniversary” T-shirt. I can also recall my sontugging on my shirt sleeve, asking when he would could play on the “tom-puter” that day. I also can clearly hear my wife’s voice asking me if I tookher advice and took the trade upward. And I will never forget what thechart looked like when I walked calmly to the computer, started up thecharting program, selected the EUR/USD, and then choked. It looked likeFigure 14.4).
Oh, crap.
This wasn’t going to look good. Not to Harvey. I suddenly realized thatno matter how much research I’d done about selling the Euro, I'd bought iton pure speculation. Once again, I had fallen into the trap of believing Icould game the system. Thinking that I knew more than I really did, I hadmanaged to get a second margin call. I was down to $2,500 in my account.Thad lost more than half the account!
Even worse, I realized that I had made the right decision. Looking atthe chart (Figure 14.5), I found that I had actually made a trade that even-tually would have been profitable—if I had not traded such a large lot size,the trade would still be open at 8:00 a.m., with some smooth, tasty profit
 
EURUSD - 5 min
br2s0
  
rade” cog a
50 minutes later, _ > |-
account erupts into lesaflames, leaving 25 pips dead. len
00 225 30 2s OO WS Be as “AT O16 0:90 ous 10D 15
FIGURE 14.4 Harry chokes.
 
Back to Square One 129
 
EURUSD - 5 min .Bitter —> |...
Savage Consolation i |, ao
Margin Calli |Ww‘grr O Bak Cad rebel
"045 115 “S45 245 245 OS 9
FIGURE 14.5 Harry’s bad timing.
}1200
i Lis
  
fyiiI
    
waiting for me. Sure it had fallen right after I’d bought it. But then it justclimbed right back up!
No way! That was not fair! I had certainly picked the right direction. Ihad made a good choice. But my timing was off. My trade size was too big.My amateurish analysis had created a spark that led to a full trading ac-count conflagration. With half my trading account in ashes, what was Igoing to tell my wife? I now understood that I’d made the right decisionand I could engage in some redemptive revenge trading. If I could get backthe money I'd lost, I wouldn’t have to say anything about it at all. So what ifTd lost half the account so far! I could gain it back by just understandingmy error and correcting it.
I'd read about this in the trading books. When a trader makes a bad de-cision, he should admit it readily and not stubbornly grip incorrect as-sumptions about the market. Better to gulp down some pride, reverse thetrade, make back the losses and move onward.
I clicked on the order button to buy $1,000,000 worth of currency—just as I had done the night before. Figure 14.6 shows the response.
Insufficient funds! I didn’t even have enough money to execute a stan-dard lot trade!
I needed $2,500 in order to do a standard lot, and that’s all I had in myaccount—which would leave nothing for available margin. That meant Ihad to reduce the size of my trade. Which I did. I traded a half standard lot,or $500,000 worth of currency, for $50 per pip. I bought the EUR/USD at aprice of 1.2119 at 8:05 a.m. on April 7, 2004. It cost me $1,250 in margin tomake the trade.
 
  
 
130 ADVENTURES OF A CURRENCY TRADER
INSUFFICIENTFUNDS!
You must deposit additionalmoney into your trading accountor reduce your trade size.
FIGURE 14.6 Harry is denied.
 
This wasn’t far from where I’d bought before, but at least now I knewit was going up. At least I understood what I'd done wrong and could makeit right. I felt a sense of righteous retribution against the market for havingtreated me so poorly. Everything I did in these few moments was done withpure emotion.
I didn’t move. I couldn’t hear my wife or kids or phone or anything inthe background. It was me against the market and nothing was going to getin the way.
At 8:10 the pair was trading 11 pips lower, at 1.2104, and I had lost$550.
At 8:15 the pair was trading 17 pips lower, at 1.2098, and I had lost$850.
These amounts were staggering to watch. How could I watch thismuch money go by? If I'd watched this happen the night before, I wouldhave closed the trade early and not withstood the damage. Should I do thatnow? I asked myself. Should I close it? If I closed it and it simply went inmy direction, then what? I'd lose more money and be even farther in thehole. The only solution was to hold on tight.
Between 8:20 and 8:40, I got some delicious deliverance from the sav-age fall—the pair traded up to 1.2107 and was closing the gap on my loss. Iknew I'd made the right decision and took a break to use the bathroom. Myfamily was gone, probably to the park or something. It didn’t matter. ’'dhave good news for my wife when she returned with the kids.
When I returned from the bathroom, I’d been margin-called.
I felt and heard a thumping sound in my head.
Whump!
Irubbed my forehead. A beastly headache was forming in the back ofmy head, which was the section of my brain probably used for storingnumbers, such as the amount of money I just lost.
 
Back to Square One 131
Whump!
Now what? I had lost $1,250. I only had another $1,250 left. This was allI had left from what had been a $5,500 account just a few hours earlier.Why hadn’t I stopped? Why couldn't I have at least taken some of thatmoney out when I had the chance?
My wife's iPod sat on the desk in front of me. Cradled in its connectorthingy to the computer, its silky white face mocked me. The navigationwheel looked like a giant mouth, laughing openly at my predicament.
There was nothing much left to lose. If I lost it all now it didn’t matter.What was $1,250 at this point? What did it really mean? Not much anymore.If I lost it, I couldn’t feel much worse than I felt right now. If I gained backeven $125, I would have doubled my account from this point and at leastwould have the satisfaction of not having given up. Clearly, the EUR/USDhad never intended on going all the way up to 1.2200. Switching to the four-hour chart, I noticed that the stochastic had never reached the overboughtarea but was starting to turn downward.
It was never going to get to Harvey’s number of 1.2200! Instead of ris-ing up that high, it became exhausted near to his number and would turndownward for at least 50 to 100 pips. So I sold. After waiting for one morefive-minute candle to close lower and prove that I was making the right de-cision, I sold at 1.2082 (see Figure 14.7). I could only afford to sell $200,000worth of currency, for $20 per pip, and it cost me $500 in margin.
It only fell 3 pips lower. It never even covered the spread. Not forone second was it profitable. It only took about 37 pips before I got a mar-gin call.
 
EURUSD - 5 min
zis
 
 
I
 
UT
ie | Sold |...
  
+“65 6557.46
FIGURE 14.7 Harry sells.
 
hump!75 7
7s 8 835 i’ O85
 
  
 
132 ADVENTURES OF A CURRENCY TRADER
Whump!
Whump!
Whump!
I stared at the $500 in my “available equity” column until 10:15 a..,when my wife returned with the kids.
She banged open the door, called out to tell me she was home, andthen cheerily yelled over to me: “So, Harry, how did that trade work outlast night?”
Then I threw up.
 
 
Breakfastwith Harvey
 
arvey Winklestein was going to kill me.H It was only four hours later—or 48 five-minute candles, or 16
fifteen-minute candles. He sat in front of me at the Utopia Diner onthe West Side, on Amsterdam not far from Lincoln Center. They had greatMexican omelets, but I didn’t order one. I couldn’t eat. I could hardly standup. Harvey had returned early from, or never gone to, his reunion party inHong Kong. In fact, he had called me not more than 15 minutes into my napthat morning. I had been lying down on the king-size bed at home, wrappedin blankets and protected by an outer shell of pillows, hoping that Harveywould not find me there. Perhaps he would simply forget about me andleave me to suffocate in a swamp of my own shame. I could cast away myabsurd plot to become a currency trader. On the phone, he’d told me thatwe should meet so he could say goodbye. By trading, I’d transgressed tothe point where I lost all credibility as a student. How could he believe mefrom now on?
“Harry, before I leave you, I am going to teach you one last lesson.Then I am going to hop over to Hong Kong and try my best to celebratewith old friends.”
What could I say? Nothing. So I remained silent.
“I am going to teach you the lesson of the pip auction game.”
Inodded.
He called over to a man and a woman who were sitting across from us.“Sir? Ma’am?”
133
 
  
 
134 ADVENTURES OF A CURRENCY TRADER
They peered over at us. This was New York. You didn’t just call over topeople and start a conversation. But they seemed to be from out of town.Harvey continued: “You having the Mexican omelet?” he asked.
“Yessir,” the young man answered, with a Southern accent that re-vealed that he was not only from out of town, but he was also probablygoing to play whatever game Harvey had planned.
Harvey spoke: “You in town from Georgia?”
The young woman's eyes brightened. “Why, yes! How did y’all guessthat?”
“Just a lucky guess,” Harvey replied, but I knew it had nothing to dowith luck. He continued: “I'd like to know if I could have a moment of yourtime.” He paused. “Just a moment.”
“What for?” the young man answered. “We're due for a show in half anhour.”
This didn’t seem to bother Harvey at all. “You folks will get to the showon time for sure. Promise. Scoot over here for a moment and you can helpme teach this man a lesson here.”
The young man and woman looked at each other, down at their food,and then back at Harvey. They shrugged. Apparently, they didn’t have a lotof experience in refusing a request from an older person. They stood upand came over to our table. Harvey asked them to sit across from eachother, with the young woman next to him and the young man beside me.
“This is the hundred-dollar auction game,” he began. “It’s a wageringgame, but no one’s going to be harmed in the playing of this game. I’m notgoing to take any money from you at all, and you're not going to lose any-thing yourself.”
They nodded. I could see that they were now thinking of how great itwould be to go home and tell their family and friends about this crazy oldman they'd met in New York City. I imagined that when this was all overthey would want to take pictures together with Harvey and me, and we’dsend them off to enjoy whatever boring Broadway show, for which theyhad paid way too much for tickets.
“Here are the rules: To get this money, all y’all have to do is bid on it.Highest bidder gets the money. Sitting right here. The entire one hundredbucks. Loser still has to pay his last and final bid, but gets nothing.”
They looked again at each other, and shrugged. One asked, “So if I bidless than $100, but I’m the winner, I still get the money?”
“Right. The other player still pays his last bid. And gets nothin’. Likefishin’ all day and comin’ up with an old tire.”
The young man raised his eyebrows. You could see he was alreadymentally spending the money he hadn’t yet won. He said: “Then I bid $1.”He clearly believed that he was far smarter than his new wife or girlfriend.He was going to pay the least amount possible for this money.
 
Breakfast with Harvey 135
No sooner had he spoke than his wife cut in. “I bid $2.”
There was a brief pause, and I noticed that other people in the restau-rant were beginning to look over in our direction. The bidding continued,and I was amazed at how fast it was going, and how excited each playerwas becoming—
“$5.”
“$8.”
“$12.”
“$16!”cried the young man, and then I looked up and noticed that asmall collection of people had now surrounded us, including our waitress,a line cook, and enough other people to make me feel claustrophobic. Onthis last bid, there was some clapping, and everyone was obviously inter-ested in the outcome of this game.
The bidding had now progressed to the point where each player wasintent on winning. I couldn’t disagree with the bidding, because it seemedobvious that even at $99, the $100 was worth buying. You would be gettinga discount of just a buck, but heck, that wasn’t so bad.
And the bidding did get there. Within just a moment or two, with thebidding at only $59, the young woman yelled, “$99!” And a cry went up inthe diner, and we all assumed we had found our winner. But we hadn't.
Our small crowd was laughing and congratulating the young woman(for being the first one to $99), when her husband (recently married, wediscovered later, from Athens, Georgia, neither ever having journeyed pastthe state line until this trip), who appeared just one notch above frustrated,announced what seemed completely ridiculous: “$100!”
Everyone fell silent. “Wazzamadder witch you?” came a call from theline cook. He was speaking for all of us. Everyone looked perplexed.
The wife looked even more determined now. The husband spoke in away that showed some intense emotions had started to brew underneaththe surface. He said: “I ain’t losin’ my money. You can pay $99, I’ll pay $100,and at least I'll break even.”
Then, we all realized that in the heat of the bidding, that the youngman, and the rest of us, had forgotten the rules of the game: the winnerwould pay his or her last (winning) bid for the $100, but the loser wouldstill have to pay. And receive nothing! All of the sudden, as everyone beganto realize this, we all became tense.
Now the game wasn’t about getting $100 at a discount. It was about notlosing a ton of money.
All of us secretly wanted the game to stop now, for we now understoodwhat was about to happen. “Stop bidding,” said the line cook. “Neither ofyous can’t win now.” He walked away, slapping a dish rag against a booth.A busboy cleared away the couple’s unfinished meals but they didn’t mindat all. Breakfast no longer concerned either of them.
 
  
 
136 ADVENTURES OF A CURRENCY TRADER
Harvey delighted in this. Apparently, he felt no regret for damaging(maybe permanently) the marriage of this handsome couple from theSouth. He now had feverish, bulging eyes that spoke volumes about hispleasure at getting the better of these two people, for having coaxed theminto doing something that they would regret. This wasn’t like Harvey atall—not the generous and kind man I had met in the past couple of days.
The young husband was now sweating, breathing hard, and increas-ingly angry.
His wife, now also angry, raised her bid to $102.
There were sighs from the back of the crowd, and I placed my hand onthe $100. “Guys,” I said, “let’s just stop here. Harvey won't make you paythis. He’s just trying to prove a point.” I turned to Harvey. “I understandwhat you're trying to teach me,” I told him. “We can stop this now. They’regoing to miss their show.”
Before Harvey could open his mouth to reply, the wife pounded thetable and then shoved my hand aside, and shouted an obscenity at me thatId rather not repeat. Southern hospitality indeed!
“$115!” She had bid before her husband had raised his!
Igulped. They were doing the unimaginable. They were now going to paya total of $215 for the right for only one of them to have $100. Outrageous!
But it wasn’t over.
“$116.”
An obscenity.
“$117!”
“$120,” replied the young man. I wondered if this would become violent.
The wife slammed her fist down on the table. She cried out, “$150!”
And with that, the husband shouted another obscenity and stated thathis wife was a lunatic for bidding that much. And it was their wedding giftmoney!
Harvey, if he was willing to do this to a newly married couple, wasprobably going to finish this entire scene by killing me and feeding me tothe hungry Southerners. He looked at the couple: “Are we done? Is that allthe bidding?”
This was the type of moment when one of the two people pulls out achainsaw and starts to cut everyone in the restaurant into little pieces.With all the anger in the atmosphere, something like that wouldn’t seem soout of place.
Harvey then notified the couple that he intended to collect. He askedthem for $270. They started digging into their pockets. I was sure that theydidn’t actually have this much cash on them. At this point their anger ateach other was bound to turn into hurt and worry.
My head was spinning. The losses in my trading account from thatmorning had faded away. The situation here transfixed me. Then Harvey
 
Breakfast with Harvey 137
spoke: “Jimmy? Marianne?” They looked up. So entirely stunned from thegame, they didn’t ask how Harvey knew their names. But it freaked me outthat he knew them by name.
They both looked up at Harvey. The husband was still fishing in hispockets and the wife had her hand in her purse.
“You're going to be late for the show. Let me walk you outside,” hesaid. And with that, they quickly gathered up their belongings. He put hisarms around them, escorted them outside onto Amsterdam Avenue, wherethrough the window I could see him chatting with them. They started tolaugh. He handed the $100 to the husband, who initially refused, and thenHarvey leaned in and whispered something in his ear. Whatever he said didthe trick and soon the couple was happily trotting down the street on theirway to the show. When Harvey sat back down, the rest of the crowd haddissipated and we were alone in the booth. He said: “Did you see, Harry,”he started, “did you see what just happened there?”
Thad to admit that the only thing that I had seen were two stupid peo-ple overpaying for currency. I told him so.
“Okay. Does that apply to trading?”
I thought for a moment. This depressed me. I didn’t want to think aboutmy losses from that morning. “I am sure that it does,” I replied. “I am surethat there is a lesson in here for me. I honestly don’t want to talk about it,though.” I paused. The truth struck me then: Harvey would soon leave and Iwould never trade successfully. Soon I would return to work at some craplaw firm if anyone would still take me. My eyes welled up with tears.
“Harvey, I am not sure I can talk about this. I lost almost all of our sav-ings today.”
He eyed me sternly: “I already know that.” Not an ounce of sympathyfrom a man who had just given $100 to some complete strangers. “I knowthat. Tell me something I don’t know, or let me finish.”
I didn’t let him finish. I stood up and walked out of the restaurant.
With a step outside the restaurant, he gripped my shoulder and spunme around. He was very, very angry. His eyes were on fire. Then he beganto speak.
THE INTERVENTION
 
Harvey: Now, Harry. Answer the question. How was that game like trad-ing currency.
Me: [silence]
Harvey: You don’t have to answer, then. You can just sit around for therest of your life and hide from your own mistakes. If you take a nap
 
  
 
1338 ADVENTURES OF A CURRENCY TRADER
after your horrible mistakes, then you can sleep through the partwhere you're supposed to learn something. You can just keep on mak-ing mistakes and avoiding the consequences. Running out of the dineris just an excuse to avoid confrontation with your worst self. If you gohome and nap again, you might never wake up. Sure, you won't sleepforever in the bed. But you'll be a walking zombie. This experiencewill scar you forever, and you'll never take responsibility for your fi-nancial future.
Me: Harvey, I don’t have any money left to trade with. I lost five thou-sand dollars in a matter of minutes today. There is no way thatmy wife is going to forgive me for that. I don’t have a financial future.I gave all the possible trading capital that I have to my currencydealer. Sure, we have some additional savings, but I can’t use thatnow. I can’t be trusted with that money. We need that money to liveon. I can’t believe how fast