Harry, remember what happened to George. Okay? You got me?”
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“I understand.”“You  can  lose  a  lot  of  money  very  quickly  if  you  start  screwing
around.”
“I  understand  that,  too,”  I  said,  laughing.  “I  am  not  going  to  trade.  I
have a lot to think about.”
And I meant what I said when I promised not to trade. As he walkedaway, moving down the sidewalk of Grand Street and then up Mulberry, Ihad a peaceful feeling that came from knowing that for right now, I didn’thave  to  trade,  but  instead  I  could  work  on  figuring  out  the  interest  ratecarry trade, I could write down my notes about my visit to the Sisler hedgefund, and I could hold on to my trading capital until the time was right.
But I broke my promise. I did take a trade.
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CHAPTER  14
Back toSquare One
My wife was excited for me, but she was anxious that I start making
money. It was hard to argue with her about that. If I didn’t makemoney, then we were going to have to dip farther and farther intosavings. We did have the money from selling off all our cool stuff and thesavings/severance, which meant we had $30,000. I had put $5,000 of thatinto my trading account. Gini didn’t mind at all, especially considering thatI was planning a trade with the supervision of a bank trader and it seemedmore reliable this time.
It  shouldn’t  have  seemed  like  trading  was  urgently  necessary,  butwhen she spoke, it was impossible to remain patient. I had what might bethe chance of a lifetime for a currency trader—to follow an order and pickup on the momentum created by a major bank.
“The longer you take to start trading, the less in savings we are goingto have,” she said that evening. “And if you start making more good trades,we can keep more in savings, and maybe even have more to use for tradingdown the road.”
“That is true.” Although her words conflicted with what I had promisedHarvey, she was my wife first. I wasn’t married to Harvey. I didn’t have toput a roof over Harvey’s head. I didn’t have to buy him food or school sup-plies. So I decided that I would take a look at the charts.
The first chart I opened was the four-hour chart for the EUR/USD (seeFigure 14.1). Harvey told me that I could trade it if I could justify it, andthat’s  what  I  intended  to  do.  To  miss  out  on  a  trade  that  he  and  HankDoorecker had planned—it was too much to resist. Perhaps his admoni-
122
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FIGURE 14.1 Four-hour chart for the EUR/USD.
tion not to trade had been a test: to see if I could adequately justify a tradeon the EUR/USD. Just to see if I was really listening.
I  saw  nothing.  There  wasn’t  anything  here  I  could  work  with.  Zero.What in the world were they looking at over at U.S. National Bank? Whatwas so inviting about selling the Euro? I could see that it had tanked on Fri-day after the jobs report. I could see that it had now risen back up a bit. Bigfat hairy deal! That didn’t give me any trade ideas. I couldn’t justify sellingit now or at 1.2200, for that matter. What was going to happen at 1.2200?Harvey had said that bank traders didn’t necessarily have access to betterinformation. Well, apparently they did!
That’s when the phone rang. It was Craig Taylor.“Harry, I hear you’ve met with Harvey. That’s the word on the street.”It was good to hear his voice. Not only did I need to thank him for set-
ting me up with Harvey, but I needed help on this trade.
I told him how much I had learned already and how much I appreci-ated the introduction. Then I told him I was stuck. “I can’t figure out wherethey go with this trade idea,” I admitted. “Harvey told me that I could tradeit if I could justify it, and I sure do want to trade it.”
“What are you looking at?” he asked.“The  four-hour  chart,”  I  replied.  “I  have  been  explicitly  commanded
not to look at short-term charts.”
“That’s  good.  You’re  working  from  one  of  Harvey’s  favorite  timeframes. So you’ve made a good start. What else do you have on the chart?”
“Nothing.”“No indicators at all? No trendlines?”
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I admitted that although I had read about all those things, I’d not foundthe  time  to  implement  them.  “Well,  Harry,”  Craig  began.  “You  first  of  allshouldn’t start with the idea of trying to figure out what Harvey is thinking.That’s not going to work. If you are going to justify this trade, you are goingto have to come up with some type of analysis of your own.”
“I have no idea where to start. I know what a trendline is, but I’m not
sure what to do with them.”
“I gotta run, Harry. You can figure this out. But doing some testing and
experimenting on your own is going to make a huge difference.”
FORCING MYSELF TO DO SOME LINES
I sat in front of my computer screen for at least 20 minutes before makinga move. Determined to not give in, I prepared myself to sit there until I atleast drew some lines or plotted some indicators on my chart. I finally de-cided that I would at least draw a line at the entry price of 1.2200. I wouldstart there. That was my goal: the number that I wanted to justify. After Idrew the line, my chart looked like the one in Figure 14.2.
At least I had a starting point now. I could see where I was planning tobuy. Was it wrong of me to be back doing this trade? Although I was doingmy own research here, I couldn’t take credit for the original idea. It oc-
FIGURE 14.2 Harry’s entry price.
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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
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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.
I had 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-ploded 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
FIGURE 14.3 Harry’s first chart.
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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  buy
it 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.M., I bought at 1.2098. It cost me $2,500 in margin to make
the 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.
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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.I had 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
FIGURE 14.4 Harry chokes.
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FIGURE 14.5 Harry’s bad timing.
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 ifI’d 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.
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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.  I’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!I rubbed 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.
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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.
FIGURE 14.7 Harry sells.
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Whump!Whump!Whump!I  stared  at  the  $500  in  my  “available  equity”  column  until  10:15  A.M.,
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.
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CHAPTER  15
Breakfastwith Harvey
Harvey Winklestein was going to kill me.
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.”I nodded.He called over to a man and a woman who were sitting across from us.
“Sir? Ma’am?”
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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  guess
that?”
“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 an
hour.”
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 bid
less than $100, but I’m the winner, I still get the money?”
“Right. The other player still pays his last bid. And gets nothin’. Like
fishin’ 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.
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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