I went straight back to my desk and moved the heap of files over toone side, and found my old phone. There was no longer a computer on thedesk, and I sort of liked that. I didn’t want any distractions. I lifted the re-ceiver and dialed home.
My wife answered on the first ring.
 
Back to Where It All Began 151
MEANWHILE, BACK IN THE CUBICLE ...
 
I explained everything to her. I originally intended to tell her about thetrading losses in person, but I didn’t want to hold anything back. Better toget all the apologies out at one time and in one place. She was shocked thatThad asked for my job back, and she was encouraged that I was willing toearn back the money I'd lost, even though I would have to work at a job Ididn’t much like. I told her that in the evenings I was going to dedicate my-self to figuring out where I went wrong, to developing the right attitudeabout trading, so that I never made the same mistakes again. She under-stood. If I hadn’t gone back to work, this conversation would have ended alot differently.
After I hung up, I went straight to work. I got a lot done in the next fivehours, staying later than I ordinarily would have. It would take me at leasttwo weeks to catch up with this material alone. But it actually felt good to beworking again, to be actively engaged in supporting my family and earningback the money that I had lost. Harvey was right. This was the only course ofaction that I could take to salvage my trading career. Saving my trading bynot trading at all didn’t seem to make much sense at first, but now that I wasworking, I realized how important it had been to protect my account.
At 7:00 pm, I stopped working for the day. I pulled a piece of blankpaper from my desk and wrote on it in capital letters:
YOU MUST PROTECT YOUR ACCOUNT BALANCE
Then I thumbtacked it to the board and headed for the elevators. But Ididn’t go all the way down. I stopped at the 31st floor, the trading floor ofErnest Wellington & Company. I wrote a note to Craig explaining that I hadtaken my old job back to earn some money to cover my losses, that I hadmade a boneheaded trading decision, and that I would like to talk with himwhen he had a chance. I planned on working through lunch for the comingweeks, but I hoped we could find some time after work. I left the note atthe receptionist’s desk, and started to leave when a voice called out to me.
“Harry Banes? Is that you?”
It was Anderson.
ANDERSON LOSES HIS MIND
 
Anderson wanted to talk and I for sure wasn’t going to refuse. He led meback onto the trading floor, still staffed with a few people who, he told me,were watching the Asian markets.
 
  
 
152 ADVENTURES OF A CURRENCY TRADER
“We have people in Japan and other parts of the world, of course,” hesaid, “but we like to keep most of the folks close to home.”
“Sounds reasonable.”
“Craig tells me you've been doing some trading. How’s it comingalong?” He found a place for us to sit at two empty workstations. In front ofeach of us were four flat-panel monitors, and when my elbow bumped thekeyboard, the monitors lit up and showed charts, current quotes on themajor currencies, and some web pages. Anderson looked over. “Looks likethe EUR/USD is trading higher again.” I glanced at the quotes.
It was trading at 1.2160. All day it had tried to approach the 1.2200mark but hadn't been able to reach it.
“Yes, I traded the Euro this morning,” I told him. “I lost. I am going totake some time off trading for a week or two.”
“Reached a drawdown limit?”
Inodded. I wondered why he was talking to me. He didn’t even seem toknow that I’d been fired. From what I’d learned about Anderson so far, hewasn't the type of person to engage in idle chat. There had to be a purposebehind this.
“Yes,” I admitted. “I lost just about all of my trading capital this morn-ing.” Ordinarily a confession like this would make me feel horrible. InsteadI felt great. Why lie to him? He didn’t have any plans to hire me. I had noreason to impress him.
“We all have those experiences starting out. All of us. I sure did.”
He then looked off into the distance and proceeded to tell me a long-winded story about how he had been out of college for six months, thenwas hired into a major bank, and how he did the working tour, like all therecent graduates, of the different parts of the bank. At the end of his six-month tour, he started working at the equities trading desk. Then he lost abunch of money, almost got himself fired, and ended up with a story farmore boring and far less informational than everything I had alreadylearned.
When he was finished, he patted the desk in front of him. “Harry, ifyou'd like to come down here after work and talk with some of the traders,that would be fine with me. When you're ready to start trading again, we’vecan put a computer down here for you and you can access your accountfrom here.”
What was he talking about? I wondered. Why had he offered this? Hadhe lost his mind?
It had to be that he knew Harvey Winklestein, and I was getting theroyal treatment because of it. But I thought I had remembered that Harveyhadn’t ever met, or didn’t know, or didn’t like, Anderson. Maybe Craig hadtalked with him. Certainly I wasn’t going to spend all day thinking about it,though. I readily accepted.
 
Back to Where It All Began 153
“I appreciate the offer. I will usually finish in the late afternoons andmaybe in a week or so, when I catch up with some work, I will start com-ing down here.”
“Sounds good. I won't be here tomorrow but if you stop by, I'll have abadge made for you so you can at least get in the door. A computer shouldbe ready for you in a few days. The IT guys are fast. If you have any prob-lems, just call me on my cell,” and then he handed me his card. Then hestood up, shook my hand, and looked me in the eye.
“I can see a good budding trader a mile away, Harry,” he told me.“I think we might be able to do some business together in the long run.Shake off those losses. Get back on the horse. Don’t let the losses get thebest of you.”
Inodded.
“You can sit around here for a while if you’d like,” he added. “I’m goingto run now, but you're already logged into Ellen Hansell’s computer. If youwant to look at some charts, be my guest. The door will lock automaticallybehind you. Dial 9 to get an outside line.”
Then he walked away to check up on some traders a few desks away.He pointed back at me, obviously introducing me to them and making surethey knew I'd be there.
Stunned, I sat motionless for at least five minutes. I didn’t know if Ishould really touch the computer. What if I screwed up and made a trade?
What if he intended for me to trade? Was this some kind of job inter-view, like Craig had when he sneaked in? Did Anderson want to see what Icould do?
I called my wife and told her where I was, and that I was going tocheck some things out so that when I came home I wouldn't be tempted toopen anything up. It would be smart to do my research here, because Iwouldn't have access to any of my own trading accounts. That was a goodthing.
The first thing I did when I gathered my senses was to open a chart onthe EUR/USD. It was the short-term chart, and it only reminded me of theexperience I'd had earlier that morning. That’s when I realized that I shouldhave been looking at the longer term charts anyway—that’s what Harveywanted me to do in the first place. So I switched over to the four-hour chartagain, and drew a horizontal line across the 1.2200 mark. Without any otherthoughts, I started to mark on the chart all the points at which the currencypair had hit the 1.2200 level. The chart looked like Figure 16.1.
I started to feel excited. Not to trade, which I knew I couldn't do, butbecause I finally might have done some actual, real, valuable, not worth-less, analysis. And on my own!
Had the 1.2200 price, for some unknown reason, simply been a hardnumber to break? Was that it? Could it be that simple? I remembered that
 
  
 
154 ADVENTURES OF A CURRENCY TRADER
     
 
EURUSD - 240 min
       
v4 Late-March 2004 ‘“ail ‘a
   
}12180
200
      
AND aanEarly Ma March 2004
| "6 mo Nt
}1.2080
}1.2000
 
ane Wie 323 MS 3M INO Unt ad 13:00
FIGURE 16.1 The currency pair hits 1.2200.
some of the books I'd read had said that sometimes round numbers weregood barriers for currencies. I had also read that once a resistance line (aprice level above the current price) was broken, it would tend to becomesupport, or a strong floor. This made sense to me. Once a currency pair didall that work to break above a level, some emotional and financial invest-ment would be put toward keeping it above that level.
Likewise, if the currency pair could break below a certain supportlevel, then that level would tend to become strong resistance, or a ceiling.Once again, this immediately made sense to me. And it seemed to be hap-pening on the chart in front of me.
I noticed that three times in early March, the EUR/USD had tried tobreak below the 1.2200 level. Then on March 24, it finally broke throughand closed below 1.2200. And what happened when it tried to rise backabove that mark? It couldn't do it. It was stopped cold at least two timesthat I could see on the chart. Those would have been nice times to sell.
Perfect times, in fact. Just like now?
On March 30, it had broken above and below and shot upward. Then ithad smashed through the line on April 2. Did that ruin my support/resist-ance theory? Was the strength of the 1.2200 number diminished because ofthat (see Figure 16.2)?
It seemed to me that the line still retained some strength. A four-hourcandle had broken the line. But what about the five-minute chart? Maybe itlooked like the four-hour candle had an easy time of breaking the level—but it could have bounced on the shorter time frames.
 
Back to Where It All Began 155
   
 
EURUSD - 240 min
a!
March 11, 12, and 17
March 25 and 26 April 2 }:2#0
         
    
in
March 30
 
| "6 mo ON «St ONé 8 80) 303 MS Ame 300 at 44 13:00
FIGURE 16.2 The strength of 1.2200.
I decided to switch down and look at a shorter time frame chart. Itmight sound lame to you, but when I saw the five-minute chart, chills ranup my spine (see Figure 16.3).
The five-minute chart showed me exactly what I needed to see: thatthe 1.2200 level, overall, had retained its strength. Even though a four-hour
 
 
IEURUSD - 5 mina a o° This 5 minute candle |, 5.0encounters the _
Five minute v savage suport of te |Smack-Down! Boom-Shaka-Laka! |:
}1.2220
asl zn
 
th Mh) ate lerr ' tt] 4, H200*
“600 “620 “640 7:00 7:20 740 200 “6:20 6:6] 820 $20 9149 10:00 0020 1040
FIGURE 16.3 The five-minute chart and 1.2200.
 
 
  
 
156 ADVENTURES OF A CURRENCY TRADER
candle passed through the number, it wasn’t as if all the traders had forgot-ten about the importance of the number. The five-minute candle hadbriefly traveled lower than 1.2200, but then snapped back upward. Thismeant that the number could still have importance now, for the presenttime, and that if the price rose up to hit that level in the next few hours ordays, it was very likely to stall and fall back down.
Was this the system that Hank Doorecker had used? All I had on the chartwas a simple line. It seemed so sparse, so... easy. I imagined that Hanksurely looked for supporting information before he traded—a quick horizon-tal line would never be enough. But maybe it would be enough for me.
I grabbed a Post-it note from the desk and wrote down, “SellEUR/USD, 1.2200.” If I wasn’t going to trade it in my own account, at leastI could declare my intention to trade it. [had my entry; but what was goingto be the cutoff point, at which I knew I'd been wrong? How far did the pairhave to go before I would need to jump out?
The farthest I could see that the pair had ever traveled beyond the1.2200 line before snapping back had been about 40 pips. That was acrosseight recent examples. I felt comfortable saying that if the price went 50pips beyond the line, then I had been wrong. So next to the “Sell EUR/USD,1.2200,” I wrote, “Stop: 1.2250.” This mean that if the price rose up and shotthrough the line, I would get out with a loss of 50 pips. But I would havethat as a buffer. I had recent history on my side.
It felt good and right to have a cutoff point. At least I wasn’t risking ahuge amount. This was all fake trading, of course. But just writing it downon apiece of paper helped me feel more responsible. I knew Harvey wouldapprove of the way I was doing this.
But what of a profit target? What would be a profit target?
Tlooked over all the other examples on the four-hour chart of when theprice had been rejected by the 1.2200 mark. The March 11 bounce yieldeda maximum of 186 pips before it turned around and returned to the 1.2200level. The March 12 gave 172 pips, and on the 17th, 234 pips. March 24 pro-duced 30 pips, March 25 did 131 pips, and March 26 gave 153. On March 30,it had bounced off the line and fallen back 40 pips. And going back to thatfive-minute chart, from April 2, it had hit the support level and then risenback up 20 pips. It had never failed to at least bounce enough to give someprofit. The average move was 120 pips. I decided that would be my profittarget. Figure 16.4 shows how the Post-it note now read.
I stuck it on the desk in front of me, intending to keep it there as a re-minder for the next day. Then I left. This was the best I had felt in a longtime. I was working to support my family. And finally, at the very least, Iknew that I had discovered the beginnings of a system. It needed morework; I still wanted to test a lot more trades and talk to Craig and Harveyand anyone else who would listen to me. I hoped they would listen to me.
 
Back to Where It All Began 157
 
FIGURE 16.4 Harry's reminder.
ON A ROLL
 
My wife was satisfied that I had returned to work to make right what I haddone wrong. She had never felt great about me leaving a stable job in thefirst place. Now that I was going to earn back the money I had lost andwould have instruction not only from Harvey, but maybe from Andersonand the people at Ernest Wellington, we both knew that that I would learnhow to trade better—I was on the right track.
The next day I arrived a full hour early for work, filed my way straightthrough the morning without a break and then skipped lunch to submit aclassified ad (to start the search for my replacement). I was working with-out the help of Scott or interns, but I found that I liked getting things doneby myself. I realized that as a manager of the filing system, I had becomevery lazy.
By 5:00 pm. I was on a roll. I researched a new computer-based filingmanagement system and took notes on the cost, called the company thatsold the program, and left a message, and organized a huge stack of casefiles that lawyers had probably thought were lost forever. I refiled the dep-ositions, letters, transcripts, and who knows what else from the past fourweeks of the Anderson case and found that Scott had made a lot of mis-takes, or had clumsily returned things where he shouldn’t have, as he was
 
  
 
158 ADVENTURES OF A CURRENCY TRADER
selling off information to the news or to the opposing counsel. I didn’t stopto wonder at all where Scott was. He was old news and I was happy thatwe had left on reasonably good terms.
By 7:00 pM., I had to pull myself away from work and nearly forgot tovisit the 31st floor. As promised, the night security guard had a badge forme when I showed up and it worked perfectly. The floor was just as emptyas it had been the day before, with probably 15 people that I could see, sit-ting at their desks. A few of them were playing cards and the others weresurfing the web. None of them were trading.
Near the back corner of the room, only about 20 feet from Craig’s desk,a computer was set up where there hadn't been one the day before. Thedesks to either side were empty, without computers or monitors orphones. A note from Anderson told me that the desk was mine to use, thatI should call the tech support guys if I needed to load software onto themachine, and that Ishould make myself at home.
Next to the note from Anderson was a note from someone named Alis-tair Martin. It said:
“Harry: sweet trade on the Euro! Thanks for the idea!”
Who was Alistair Martin? I looked up, toward the desk where I'd satthe night before. Then I realized that I’d left my Post-it note on the desk ofa currency trader named Ellen Hansell, and that she had taken the trade,probably with Anderson’s approval. I immediately punched some keys onthe computer (realizing that I had become very comfortable with a com-puter, without having even noticed it before) and pulled a chart to seewhere the Euro had traded that day (Figure 16.5).
To say that I amazed myself is an understatement. I shocked myself.For five minutes, I just looked at the chart from several different angles.Was I looking at it correctly? Did I really plan that trade? Had I actually an-alyzed the charts, picked an entry, a stop, and a profit target? Withoutblowing up an account? I wondered how much money Alistair Martin hadmade using my idea. If Alistair was trading one-million-dollar positions,then the 120 pips had made him twelve thousand dollars. If he had traded afive-million-dollar position, then he had made sixty thousand. The num-bers amazed me.
I decided that the long-term charts worked better for me, after all. Har-vey was right from the beginning, and I never should have looked at theshorter time frames, which only tempted me to jump into quick positions.The short-term charts appealed to my greed. The long-term charts requiredpatience, rewarded analysis, and produced in one trade more profit thanany of the short-term trades I'd seen.
 
Back to Where It All Began 159
The eS =.
L..,
 
EURUSD
> 240 min
    
 
 
Tasty profit! ~~
“190 1300 “ant 300 ‘ane aos 4380 “406 «13.00 “aor ‘00 “aoe 13.00
FIGURE 16.5 Harry looks at Euro trades.
I thought of Mindy at George Sisler’s hedge fund. It occurred to me thatshe could benefit from switching to a long-term view, if in fact George wasgoing to require more of her, as Harvey suggested. It made sense to me any-way. Why trade over one hundred times in one day, just to achieve thesame profits in one trade by careful study on the long-term charts?
Next I determined that if the system of support and resistance that I’dtraded worked before, then it would work again. And if I was tempted tolook at a different time frame, I’d select an even longer time frame than thefour-hour charts. But first I had some questions.
The first trader I found sitting about twenty feet in front of me was ac-tively engaged in a game of rolling dice against another trader who was ob-viously working very hard, and not at his desk. Both of them were dressedcasually. Neither one was a day over 30 years old. I supposed, from what Ilearned about traders so far, that their youngish looks and apparent lack ofconcern for the market had nothing to do with their skills as trader. Istarted to think that the better the trader, the less the person would actu-ally look like a trader. Or what I expected a trader to look like. Or, moreyet, what I expected a trader would be doing. In fact, what did these guysdo all day? Why were they even here? I wondered.
“Hi Harry,” the first trader said. “Watcha doin?” He spoke with a Cana-dian accent.
“Hi. I have some questions. If you don’t mind. I hope I’m not interrupt-ing anything important.”
 
  
 
160 ADVENTURES OF A CURRENCY TRADER
“Not at all, Mr. Banes,” the other answered. “We’re just here manningsome open positions.” This one spoke forcefully with a British accent. Hisvoice had a tone of confidence, and this impressed me. I wanted to speaklike that. I wanted to be sure of myself like that, especially when trading.Confidence seemed to play a big role in trading success. After making amental note to ask Craig or Anderson or Harvey about it, I asked: “Is thereany reason that switching from a four-hour chart to a daily chart wouldmake a big difference? As long as I am following the same system?”
The Brit didn’t even look up. He shook his head. I think he took me foran amateur (which I could not dispute) and didn’t seem to care one way orthe other if I got my answer. The Canadian seemed completely willing tohelp and replied happily: “Not really. What works on the four-hour ought towork on the daily. But you should go back in time and test it to make sure.”
That seemed reasonable to me, although I had no idea how I might goabout doing such testing. I was going to ask another question, but theCanadian beat me to it: “If you're going to trade from the daily, you're reallygoing for the bigger moves. That’s where you can get a big piece of the ac-tion, if you can ride along for the swings. A lot of traders here are taking aharder look at the long-term charts for that reason. More profit, less work.And you trade from home, right? Well, it’s obviously much easier since youare only going to have to look at the chart once a day. Or at least, you'regoing to center your planning time around 5:00 p.m. Eastern Time, when theNew York session is completely over and the daily candle closes.”
Once a day? That made sense. If I planned my support and resistancetrades on a daily chart—then I would only really be looking at the chartswhen the daily candle closed. And now I knew that it closed at 5:00 pm. Iwould later learn that in the 24-hour world of currency trading, 5:00 p.m.Eastern Time represented the end of one day and the beginning of the next.At that time, a new day was starting in Asia and a workday was ending inNew York. So it made sense if I looked at it from a worldwide standpoint.
I couldn't remember any more questions, so I stood and watched themroll the dice a few times. The Brit chimed in: “Want a piece of the action,Harryboy?”
“Not really. What’s at stake here?”
The Canadian laughed. “This game is called ‘paycheck,’ Harry. He’s gotme for two paychecks right now. It’s a simple game: I roll three times andadd up the total. Then Roddy here makes a bet. He bets either that he canbeat the total in one roll, in two rolls, or in three rolls. One roll is called a‘one bet,’ two rolls a ‘two bet,’ and three rolls, a ‘three bet,’ or the ‘wussbet,’and you can figure out why we call it that. If he makes a three bet, and hewins, then he owes me nothing and I owe him nothing and I get to rollagain. If he loses the three bet, as we call it here at EW, then he pays mehalf a paycheck. If he makes a 2 bet and wins, he wins half of my next pay-
 
Back to Where It All Began 161
check and gets to roll next. Now he would only make a one bet or a two betif the numbers say he can win with those, of course. Follow me?”
“Sure. I get it.” This was madness. It was 8:00 pm. on a Thursday nightand they were rolling dice to win more money from each other than Iwould make in two months.
“Now about the one bet,” he continued, in his Canadian accent, “That’swhere it gets interesting. If Roddy wins a one bet, he gets my next pay-check and he gets to roll for the next two turns, no matter if I win or lose.If he loses, he owes me his next paycheck and loses a turn.”
I thought: Yes, they’re insane. How much money could they possiblyhave?
Istarted to leave when the Brit spoke up: “Hey, Banes! How about thattrade today? How far you think it can go? You think it can get down to1.2000? The round numeral, as I like to call it?”
“I don’t know,” I replied. “My target was 1.2080. Where's it tradingnow?”
He leaned over to his keyboard and punched it in. “It’s still hangingout in the high 2000s. But I think it can make a second drop lower. I’mstayin’ in.”
“You took the trade?” I asked.
“Yeah, sure I did. I heard all about you. You're working with Harvey, theWinklemeister. Everyone here took the trade. Just about every desk yousee here, they all wanted to take the trade—small or large, didn’t matter.Some of these guys only trade the crosses, you know, the EUR/JPY, theGBP/CHF, and so on. So they didn’t take it. But I did. So did WinnipegGeorge.”
“Does Anderson know you all took it?” asked.
“Heck yeah,” he shot back, obviously thinking I was a moron for notknowing that already. “Anderson knew about it. He signed off on every oneof us taking it. It was a fine trade, Harry. You made me some excellent cointoday. Cheers!”
“Cheers!” I replied, and then I forgot all my other questions.
What? I thought.
Whump! It hit me on the head as hard as those bad trades had hit. Butthis time it was a much better whump! It was the whumping that you get inyour heart when you are first kissed. Only I had been kissed by sweet, re-demptive pippage. Who knows how much money I’d made for these peoplehere? One-million-dollar positions times 10, 20 traders? Or more? Multi-plied by a hundred pips or more?
Irecollected my brains and then walked back to my temporary tradingdesk. I didn’t try to act nonchalant about it. If 1 could have skipped back tothe desk, I would have done it. My duty now was to find more of thesetrades. Had it been a one-time-only thing? Had I just been lucky because
 
  
 
162 ADVENTURES OF A CURRENCY TRADER
Craig had tipped me off to the idea in the first place, and Harvey had con-firmed it? Could I repeat this?Topened up the daily chart for the Euro and went to work.
COULD 1 DO IT AGAIN?
 
What surprised me more wasn’t that my idea had been used by real WallStreet traders (okay, it was not fully my idea, but it sure felt like it at thetime and I needed a boost in confidence), but rather that something as sim-ple as a support/resistance line was powerful enough to create pips. It wasa drug to me: I wanted more of it. Did other currency pairs act like this?Could I do the same thing on others? What about those cross currencypairs that Roddy had mentioned, like the EUR/JPY?
The good news was that I didn’t need to worry about all that rightaway. For now, I could focus on the four-hour, and even the daily charts. Icould start to understand what Harvey was talking about when he saidtesting: He was asking me to focus and study one thing. I didn’t quite knowhow to start doing that, but I was determined to try. If I didn’t get it right,then I wouldn’t see him again.
The moves on the daily chart were much bigger—just like WinnipegGeorge said—so I would have to plan for wider stop losses and could gaingreater profits from those moves as well. That must have been why Harveywas so intent on having me concentrate on the long-term stuff. Greater po-tential for more reward, for the same effort. Sounded good to me. The four-hour and the daily and the EUR/USD would do just fine for now.
Then I asked myself a series of questions, inspired by Roddy: How farmight the Euro fall downward? Where was it likely to stall? Could I find anarea, just like 1.2200, only lower? Some area where the currency pair hadexperienced trouble moving higher or lower?
The four-hour chart was no help at all. I could see some areas thatmight stall the pair above 1.2200, but not below it. And I needed to find agood stopping point on the downside. So I moved to the daily chart andfound something that I really liked (see Figure 16.6).
It definitely appeared that 1.1850 was a meaningful number. On theleft-hand part of the chart, back in May and June 2003, the currency pairhad struggled to rise above that level. Then in October of the same year, itcouldn't break above it at all. Then in November, as it was finally gainingenough strength to pierce the level, it still stalled there for several days,and still surely produced some nice moves back and forth. In all, I foundfive solid examples of the pair bouncing off that level between May and Oc-tober 2003.
 
Back to Where It All Began 162
\, |Nov. 2003 I {=
 
EURUSD - Daily
 
 
FIGURE 16.6 The daily chart.
I wanted to choose this level for a profit target. But was this enough re-search? I