nevereven had. “Actually, I wanted to ask you about trading. Have you ever beendown to the 31st floor?”
“Sure. I’ve got a friend who works down there. It’s pretty amazing.”
28
book_c04.qxd  12/20/06  2:02 PM  Page 29
Two Promising Conversations
29
I then told John about my errand down to the 31st floor and that I had
met with Anderson that day.
“Anderson told me that they are going to be starting a new forex fund.”“Did you tell that to Herb?”I shook my head.“Why are you telling this to me?”“Herb  scares  me,”  I  admitted,  “So  he  doesn’t  deserve  the  news
just yet.”
John smiled widely. He seemed to like that.“And,” I continued, “I heard Anderson say some stuff that I want to fig-
ure out.”
“Shoot. I’ll help where I can.”I took a deep breath. “Could they really be raising five billion?”He looked at me sideways. “Oh, yes. Definitely. They could probablyraise twice that if they wanted to. Forex—currencies—it’s hot right now,white-hot. They are probably raising capital to do their own fund, ratherthan sell people shares in other forex funds. Other firms are doing it now,and  it’s  big  business.  These  companies  take  high-net  worth  clients,  evencorporations, and put their money in a fund that only trades internationalcurrency.”
“What  do  all  those  guys  do  for  a  living  down  there?  What  are  they
doing?”
“They’re trading. Some of those guys are actually my classmates from
law school.”
“Trading? From law school?” Just like Anderson.“Yes. Some of the guys in school just didn’t want to practice in a firm.So they interviewed on Wall Street instead. These firms are looking for apedigree, and Harvard Business or Harvard Law do equally well. It mightbe a bit tougher for the law guys, but there are fewer of them in the firstplace that want to go down there and scream and yell for a living. To tellyou the truth, it’s the guys down in the bottom of the law school class thatwent to work on Wall Street.”
“Why is that?” I speculated that the smart guys were getting the goodjob offers, and that at the bottom of the class you had to settle for a job onWall Street. It almost sounded like they were taking a step down when theywent to work as traders. John confirmed that and then rejected it.
“They  are  taking  a  step  down,  right,  in  a  certain  sense.  Those  guysdidn’t do well in law school because they were always going to Red Soxgames  instead  of  Constitutional  Law.  Or  they  were  sleeping  in.  Or  theywere reading the business section or the stocks tables, or watching CNBC.Some of those guys just had it in their blood. One of my friends dated thegirl at the front desk on 31—and then spent every day for two weeks at atrading desk down there, acting like he was busy. He had a computer setup
book_c04.qxd  12/20/06  2:02 PM  Page 30
30
ADVENTURES OF A CURRENCY TRADER
and everything. He didn’t attract attention, didn’t go to lunch with anyone,but he sat there for two weeks like he owned the place. He called me a fewtimes a day and started shouting into the phone to act like he was doingsomething.”
“What happened to him?”“Anderson caught up with him.”“Did he get thrown out?”John laughed. “No. He got hired on the spot. Anderson knew about it
from day one. You can’t get anything past that guy.”
Except, I thought, that I was not an attorney. John continued: “Ander-son watched Craig sit there and act like a trader for two weeks, dressingthe part, banging on the keyboard, yelling into the phone. And Craig knewhis stuff. He was smart, he knew currencies—and Anderson picked up onthat.  He  interviewed  Craig  right  there,  right  in  the  middle  of  the  tradingfloor.”
I  was  stunned.  Maybe  I  could  do  the  same  thing.  This  guy  Andersonseemed like the kind of person who would understand. If he threw me out,I really didn’t need the job anyway. At $400 per day, my own trading wasplenty enough. Then John continued: “In fact, Craig begged him at first notto throw him out. Craig thought he was going to be arrested. But Andersonwanted  to  talk  shop.  He  started  asking  Craig  what  he  thought  about  thevalue of the Euro to the Japanese Yen. He made some passionate speechabout  interest  rates  or  trade  balances,  and  the  current  outlook  for  eacheconomy, and that now was the absolute perfect time for a buy based onhis  technical  analysis.  Anderson  logged  into  Craig’s  computer  and  rightthere, bought five million Euros against the Japanese Yen.”
“Whoa.”“Right. And the trade worked out, and Craig got the job. Good story.So,”  he  continued,  clearly  satisfied  with  his  telling  of  the  story,  but  nowpressed for time, “What can I do for you?”
“I  want  to  talk  to  Craig.  Or  Anderson.  Or  anyone  who  knows  about
trading.”
“Why? You want to be a trader?” He wasn’t making fun of me. Rather
he appeared to be sincere.
“Right. I want to be a trader. Maybe not down there. But maybe on my
own.”
“Caught the bug, have you? That’s awesome.”“So do you think I could meet Craig?”Even though he wanted to help me, I could see that I was stretchingthe bounds of our relationship. He probably didn’t know if Craig would re-ally want to answer all my questions.
“Listen,” I said. “I have never been passionate about this job. I dogood work for the firm. I’ve been doing good work for 11 years, before
book_c04.qxd  12/20/06  2:02 PM  Page 31
Two Promising Conversations
31
you even got here. But something happened when I went down there. Itmust be what you felt like when you first walked into a big law firm for aninterview.”
“Probably not, but go ahead,” he said.“I just want to talk to him. Find out what is going on down there on thetrading floor. I swear, I would sneak in there and do what Craig did if I hadthe guts. But I don’t. I would barf all over the desk on the first day.”
This was the best job of begging that I could do, but John wasn’t goingfor it. I could see that something was bothering him. Most likely, it was thefact that he was going out of his way to help me when I had nothing in re-turn to offer him. Or did I?
“How much is this forex fund deal worth to the firm?” I asked.He shrugged. “It’s a lot of money. It’s not just the offering documents,but registrations, compliance issues, ongoing legal support—maybe evensome introductions to some of our clients, and of course the backgroundchecks that Anderson mentioned to you. Probably over two million dollarsin fees.”
“Herb doesn’t know about this yet.”John stopped shrugging and looked me straight in the eye. “What are
you saying?”
“You get me lunch with Craig.”“And?”“I’ll get you a meeting with Anderson about the forex fund.”“You really think you can set up a meeting with Anderson and me?”I nodded. “I’m positive. He nearly hired me on the spot to start work on
it.” That wasn’t exactly true, but it wasn’t all wrong, either.
“And Herb?”Now it was my turn to shrug. “What about Herb?”“What if he finds out?”I grinned. “I won’t be working here any longer anyway. And you’ll haveto go to Herb, anyway, and tell him about the deal. The most you’ll get outof this is credit, but it will be big credit.”
With that, we shook hands and the deal was done. John called Craig,right  there,  and  while  they  were  talking—even  from  a  few  feet  away—Icould hear the roar of the voices on the trading floor. It sounded like sweetmusic to me.
WHY TAKE PROFITS WHEN I CAN RISK MORE?
To say the least, my wife was impressed with the profits. We had a conver-sation that I will never forget. Word for word, I can remember it perfectlysix years later.
book_c04.qxd  12/20/06  2:02 PM  Page 32
32
ADVENTURES OF A CURRENCY TRADER
MY WIFE: Do you think we should take some of the money out?ME: Definitely not.MY WIFE: Why not?ME: I can now increase the size of the trades.
From the look on her face, I could tell that my wife was not privy to theobvious wisdom of this strategy. It was frustrating to have to explain to herthe intricate details of how I was on my way to becoming a currency trad-ing tycoon, that I was on a hot streak, and that I was going to have a poolwith  midnight  blue  water  and  with  attendants  who  served  me  drinks.  Ineeded  to  be  trading  for  more  money  per  pip  now,  and  I’d  need  all  themoney in the account.
I told her about my experience on the 31st floor as well.“Do you think you could get a job there?”“I don’t think so,” I told her. “Those guys all have Harvard degrees.”“You could do it. I am sure you could do a great job there,” she told me,and this made me happy. It pleased me greatly to hear that my wife couldtell that I knew what I was doing.
“I think I would like working there. I would never have expected it orthought about it. But when I walked through that steel door and saw thattrading  floor,  something  clicked  inside  me.  I  couldn’t  hear  anything  butyelling and screaming. But for the first time in months, maybe years, I feltpeaceful about our financial problems. I started to see how we could payour  rent  consistently.  Something  clicked.  I  was  standing  on . . . well,  itsounds lame but I was standing where I should be. It was like I should havebeen there all along.” She was smiling at me now. She realized that I hadnever felt this way about a job before. “All along, I should have been work-ing as a trader. I don’t have the degrees, I don’t have the math, but I do havea secret weapon.”
“What’s  that?”  I  could  see  that  she  was  practically  giggling.  My  wife!
Happy! Pregnant, poor, wife of a lowly file manager, but happy!
“Connections.  I  am  having  lunch  today  with  Craig  Taylor,  one  of  thetraders at Ernest Wellington. He’s going to help me do even better than I’vedone so far.”
I wanted to trade again that night, but the kids and my wife got in theway and I didn’t get the chance. I determined that tomorrow I’d make moretrades. If I really wanted to turn up the heat and make some coin, I wasgoing to have to make more trades every day. One or two trades was justnot enough.
book_c05.qxd  12/20/06  2:02 PM  Page 33
CHAPTER  5
LessonsLearned
The next day, Craig took me to lunch at an outdoor café. He was a bit
over  6  feet  tall,  with  an  athletic  frame  and  a  cheerful,  charismaticface. This was the type of guy who you knew had been elected classpresident  and  who  set  up  the  weekly  poker  tournaments  in  the  dorms,stayed up all night taking money from his friends, and then ran in a trackmeet the next day. I immediately liked him.
Even better still, Craig was happy to help from the first moment that Imet him. He didn’t seem to mind that I was totally using him. I had a zillionquestions,  and  he  was  ready  for  them.  He  didn’t  even  care  that  I  inter-rupted  him  during  an  answer,  so  that  I  could  ask  another  question.  Thiswas a good omen. I had a friend on the inside. It was lunchtime, and I stillhad not traded yet for the day, and talking to Craig was making me moreanxious  than  ever  to  get  back  to  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 . . .”
33
book_c05.qxd  12/20/06  2:02 PM  Page 34
34
ADVENTURES OF A CURRENCY TRADER
“Oh, not at all. Sorry that I made it sound like this was a job that I didn’t
want. 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 to
be 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 to
trade?”
“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 that
trading 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 million
trade?”
“$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.”
book_c05.qxd  12/20/06  2:02 PM  Page 35
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 it
better 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.
CRAIG: That’s true. That one trade made ten million dollars for the firm.ME: John told me it was five million.CRAIG: 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 a huge 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?CRAIG: 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
book_c05.qxd  12/20/06  2:02 PM  Page 36
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?CRAIG: 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?CRAIG: 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?CRAIG: 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  most of 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
FIGURE 5.1 Craig’s first trade.
book_c05.qxd  12/20/06  2:02 PM  Page 37
Lessons Learned
37
glued my face to the charts at work and called in for quotes aroundthe clock.
ME: Why were you so concerned?CRAIG: 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?CRAIG: Yes. Super yes. They stood up and gave me a round of applause on
the 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?
CRAIG: Oh, yes, I am 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.CRAIG: 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?
CRAIG: 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?CRAIG: 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).
book_c05.qxd  12/20/06  2:02 PM  Page 38
38
ADVENTURES OF A CURRENCY TRADER
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?
CRAIG: 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.
CRAIG: That’s the other thing. Making money on my first trade at the firm
was probably the worst thing that I could have done.
ME: Huh? Why?CRAIG: 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.
CRAIG: And  I  thought  that  I  could  keep  making  that  much  money  every
time I traded.ME: You couldn’t?CRAIG: Oh, no. I could not. Not even close. I lost on my next 13 trades. All
of them.
ME: Unlucky 13!CRAIG: 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.
book_c05.qxd  12/20/06  2:02 PM  Page 39
Lessons Learned
39
ME: What?CRAIG: 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?CRAIG: 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 before
you closed it.
CRAIG: 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 over
again?
CRAIG: 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?CRAIG: 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?CRAIG: Oh, yes. The year 2003 was great by the end. But it was my most
difficult year.
ME: Can you tell me about that?CRAIG: Some other time, yes. There were some awesome trades that year.
book_c05.qxd  12/20/06  2:02 PM  Page 40
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.”
I nodded. “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 I 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 on
his 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