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 the
line 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 not
losing 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.
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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 thatI’d rather not repeat. Southern hospitality indeed!
“$115!” She had bid before her husband had raised his!I gulped. They were doing the unimaginable. They were now going to pay
a 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
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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  his
pockets 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?”
I had 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
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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  that my 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  I  let  it  go.  It  disappeared  so  fast.  I  can’teven talk about it.
HARVEY: Harry, sit here on the curb and talk to me for just a few mo-
ments.ME: [silence]HARVEY: That’s better. That’s the reasonable Harry Banes that I know.ME: [silence]HARVEY: Maybe that was the last trading you’ll ever do. That’s a possibility.But I gotta talk to you about this. You’ve got to come to terms with whathappened.
ME: Okay. I’m willing to do that. I am willing to listen.HARVEY: First  of  all,  let’s  look  at  what  just  happened  in  the  restaurant.
How was that like currency trading?
ME: I suppose that this morning I engaged in the dollar auction game.HARVEY: Or the pip auction game.ME: Right. The pip auction game.HARVEY: Did  you  notice  that  Jimmy  and  Marianne  started  off  thinkingabout how much money they were going to win? They were thinkingabout how they could outsmart the other person and get a discountfor a $100 bill. They wanted to spend the least amount of money forthe  greatest  amount  of  money,  and  they  put  very  little  thought  intotheir bidding.
ME: That  sounds  familiar.  It  sounds  like  what  I  did  today.  Just  with my trading account. I didn’t want to end up a loser, so I kept trading,hoping that I could end up a winner, no matter how much I lost alongthe way.
HARVEY: Right! Perfecto! This is the next lesson. When you trade like youdid this morning, you are chasing after money, no matter what the cost.It was only important to you that you did not have to look like a loser.
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Any amount of gain would be acceptable. Remember how just a shorttime into the dollar auction game, Jimmy and Marianne lost sight of themoney that they wanted to gain? Then they started to worry only aboutnot being the loser.
ME: Yes, I did notice that. I realized that they didn’t want to look bad. Eachone  didn’t  want  to  be  the  one  that  had  to  pay  something  for  nothing.This  morning,  when  I  was  trading,  I  would  have  been  happy  to  earnback anything at all. When I had $1,250 left, all I wanted back was an-other $1,250. It was like I was trading to make up for my previous trade.No focus at all on whether the next trade was truly a good idea. Just to-tally wanting to make back what I lost.
HARVEY: Any trader can fall into this trap. I call it the pip auction game.Even bank traders can fall into this. Every trade you take is simply anopportunity to bid for pips! You make a bid—
ME: In the form of margin.HARVEY: No,  not  really.  You  think  that’s  what  you’re  risking,  but  it’s  not.
What are you really risking when you take a trade?
ME: I’m risking a loss. The loss of capital if the trade doesn’t work out.HARVEY: And what was your risk threshold today?ME: I didn’t have one.HARVEY: So your risk was infinite.ME: Yes.HARVEY: And your profit potential? What was your profit target on these
trades?
ME: Well, for some of them it was determined, and for others I didn’t have
a profit target.
HARVEY: So  you  were  willing  to  bid  your  entire  trading  account  for  the
chance to win an indefinite amount.
ME: That sounds horrible.HARVEY: And it sounds like the truth.ME: I  remember  what  you  said  about  George  Sisler  and  his  first  experi-ence managing money. I don’t want to compare myself to a successfultrader like George, but this does sound familiar. At a point, he stoppedknowing what he was in the trade for—and he kept the trade open justto not lose. He was, for a while, willing to lose an infinite sum of moneyin order to win an indefinite profit.
HARVEY: You remember George now! But you did not remember him this
morning.
ME: I did forget George completely.HARVEY: That’s because it happened to George! Now we’re getting some-place. When you become a great trader, these lessons will not be far offin your mind. You’ll remember what you did this morning much moreclearly than what happened to George.
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ME: I am not sure I am ever going to become a great trader. I don’t think
I’m ever going to trade again.HARVEY: Oh, you’ll trade again.ME: I don’t have any money to trade with.HARVEY: Yes, you do.ME: I am not going to touch that money. I have to live off that money while
I find a job!
HARVEY: Yes, you have to live off that money. You do have to find a job.Those  things  are  true.  But  it  doesn’t  mean  that  you  won’t  ever  tradeagain. Look at George. See how he’s doing. He lost over $100 million inhis bad trading experiences. Can you top that story?
ME: Not really.HARVEY: Exactly. You still haven’t even started out. You had your first big
loss. You can still do this.
ME: But you told me that you weren’t going to continue to work with me.
If I were you, I wouldn’t.
HARVEY: I  said  that  because  you  lost  a  lot  of  trust  with  me.  And  it  stillmight  be  true.  There  are  some  important  things  that  you  are  going  tohave to do. And if you do them, then we can work together again. But itwon’t be easy. And this is where 50 percent of all the people I work withtotally give up.
ME: I don’t want to give up.
OMELET AND HUMBLE PIE
“What is your first concern, above everything else?” Harvey asked.
We were back inside the diner and I was eating a Mexican omelet. Ittasted just as good as it was supposed to. If Harvey hadn’t stopped me onthe street, I am sure that a lot of bad things would have happened—it’s notinconceivable  that  my  marriage  would  have  ended  over  this.  It  didn’t(more on that later). It’s probable that I would still be working for someoneelse  today.  Which  I  am  not  doing.  It’s  possible  that  I  would  have  donesomething drastic. I didn’t.
Instead, we were inside the Utopia Restaurant and I was experienc-ing  a  frontal  pipotomy,  a  not-so-delicate  surgery  to  remove  all  of  myridiculous  assumptions  about  how  to  become  a  successful  trader.  Al-ready this discussion had freed me from some of the weight of what I haddone to my trading account: I realized that other traders, even superprof-itable  ones,  had  experienced  similar  lapses  of  trading  sanity.  EvenGeorge  Sisler  recovered  well  enough  to  eventually  run  a  multibillion-dollar hedge fund.
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With Harvey’s help (if he would still work with me), I could see myselfdoing better one day. Not making the same mistakes. Perhaps even manag-ing money. But that was far off. Now, instead of thinking of the next trade,or imagining that I could follow along with Harvey’s or Hank’s or Craig’s oranyone else’s trading, I concentrated on how I would change my thinkingfirst. I told this to Harvey.
“My first concern,” I said, “Is that I change my way of thinking. That Ichange my mind-set. I have let myself be guided by my greed, or my emo-tions. I don’t want that anymore.”
“You want discipline.”“Yes. I do. I don’t ever want to find myself in the same position I was in
today. Ever again.”
“I  have  a  secret  for  you,  then,”  he  told  me.  And  he  leaned  in  closer.
Then he said: “There is no secret.”
He sat back and waited for my response.I didn’t offer one, so he started again: “There is no secret to obtainingdiscipline. There are ways you can increase your self-discipline. But thereis no secret formula.”
“But there has to be a way for me to do something about my lack ofdiscipline.  I  need  something.  Anything.  What  did  the  other  traders  youworked with do? It’s not like George woke up one day, said, ‘Well, I’m neverholding onto a trade that long again,’ and then was over and done with it.”Harvey simply looked back at me for a moment or two. “Really?” hethen asked. “That’s not how it went for George Sisler? Why don’t you tellme what happened with George? If he didn’t wake up one day and make adecision to change for the better, then what did he do?”
I didn’t have an answer. “I don’t know,” I admitted. “I just figured thatyou would have some sort of action plan for a guy in my position. With myproblems.”
“I have an action plan, Harry,” he replied. “I’ve got one. But it presup-poses that you are fully committed to changing your life. I can’t force youto have discipline. I can’t live inside your body, or push the buttons on yourtrading platform, or sit in your house all the time and tell you when to stoptrading. I can’t force you to exercise, to stop hiding things from your wife,or to never risk losing half your account on a single trade. I can tell youthose things but I can’t make you do them.”
“That does make sense. But where does that leave me?”“It leaves you with yourself. That’s why I don’t want to work with youright now. It’s why you’re going to be on your own for a while. You’ve earnedyourself some downtime. We could have made a huge amount of progress ina very short period, but we’re going to back it up. I am going to move on andwork with a fellow named Larry Ho, in Topeka, Kansas. He’s a commoditiestrader and he’s nearing the absolute destruction of his trading account.”
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“Please stop him before he does it.”He raised his voice: “Harry! I’ve just finished telling you that I am notgoing to be your conscience. You’ve already got one! I have been workingwith traders for more years that you would believe. I am not in the busi-ness  of  becoming  your  mother.  If  you  want  to  torpedo  your  trading  ac-count, then do it! Do it and get it over with and you can move on with yourlife! But I am not going to step in and hold your hand. Otherwise I’ll nevertrust you. If you are going to do this, you have to do it on your own. Youhave to be trustworthy.”
“I haven’t been worthy of anyone’s trust. I get it. I really do understandthis  time.  I  still  hope  that  Larry  doesn’t  torpedo  his  trading  account,  asyou said.”
Harvey sighed. “Me too, Harry Banes. Me too.”This gave me an idea. “I want to ask a favor that I don’t deserve, Har-
vey. You can say no if it’s not appropriate.”“All right,” he answered. “What is it?”“I want to talk to Larry Ho if he does not savagely destroy his trading
account.”
The request surprised Harvey. But he answered immediately. “No. Ab-
solutely not.”“Why?”“The two of you talking together? That would be like having two hurri-canes mesh with each other in the Atlantic Ocean before hitting New YorkCity.  You  would  be  a  terrible  influence  on  each  other.  Who  knows  whatkind of trade ideas you would come up with.”
“What if I spoke to him with you present? Like on the phone?”He thought for a moment. This suggestion warmed him up to the idea.
“Or in person. Then I could cut you off.”
“Sure. I can’t afford a plane ticket to Topeka.”He  had  an  answer  for  everything.  “But  Larry  can  definitely  afford  aplane ticket to New York. I’ll think about it, Harry. I promise to do that. Butfirst we’re going to dive into the next law of trading, and then I am going toleave you for a week.”“I am ready.”
MY PERSONAL DAYLIGHT LIMIT
HARVEY: Harry, how much of your account do you think it’s okay to lose?ME: None?HARVEY: No. That’s a lame answer. Of course you’re going to have to losesome  money  in  the  course  of  ordinary  trading.  But  how  much  is  too
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much? In percentage terms, tell me when you think a trader ought to getout and stop trading.
ME: This is going to come as no surprise, but I have never thought of this
before.
HARVEY: Most traders never consider this. But remember when we talkedabout George Sisler, working at the bank? George had a Daylight Limit,which was supposed to be a loss level at which he would be instructedto stop trading.
ME: I do remember that now. And it would be expressed in terms of apercentage of the trading capital lost. When he reached a certainthreshold, it would stop trading. Or he would be forced to stop trading.HARVEY: I  am  going  to  repeat  again  one  of  the  only  advantages  that trading in a bank has over someone like you, Harry. It’s a forced Day-light  Limit.  If  you  had  been  trading  in  a  bank  this  morning,  you never  would  have  been  able  to  draw  down  the  account  so  far.  Yourmanager would have known you were drowning in losses and wouldhave  cut  you  off.  Your  trades  would  be  closed,  and  you  would  then go  into  the  conference  room  and,  depending  on  your  boss,  you’d get  fired,  or  you’d  get  some  help.  But  you  most  certainly  would  not be  allowed,  at  Ernest  Wellington,  to  keep  trading  your  account  intothe toilet.
ME: I like that. I know you’re not a fan of forced discipline, but—HARVEY: Right. I hate it. This is why so many bank traders leave the bank,
go out on their own, and have all sorts of problems.
ME: Because they no longer have a boss, right? A Daylight Limit that holds
them accountable no matter what.
HARVEY: The bank has a systematic way of forcing you to discipline your-self. It’s institutionalized self-discipline. The bank is an entity fully con-centrated on making the most amount of money possible for the lowestpossible investment. These days, they employ risk managers and math-ematicians  to  make  sure  that  they  are  not  over-risking.  They’re  notgoing  to  let  a  trader  with  even  the  most  spectacular  track  record  gocrazy. No way.
ME: All right, then. I’ve got to organize my life or something so that I candevelop the same amount of discipline. I have to say, that it’s attractiveto have some forced discipline.
HARVEY: But it’s the easy way out. Do you see that?ME: Yes. Because it still depends on someone else to take responsibilityfor my wins and losses. If I have a supervisor or someone who pressesthe buttons when I get out of control, then what happens?
HARVEY: When that person is no longer available? You’ve got it! You’ve fig-ured this out. You don’t want to depend on me. Or your wife or GeorgeSisler or Craig Taylor or anyone else. You want to develop the ability to
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be a self-directed and responsible trader. It’s a big job, but you can do it.And it starts by changing your mind-set.
ME: I am ready to do that.HARVEY: Good.  Now  back  to  the  original  question.  How  do  you  knowwhen you have lost too much? Let’s back it up and ask some questions.What  do  you  think  a  trader  should  do  if  he  loses  1  percent  of  his  ac-count?  If  he’s  trading  five  thousand  dollars  and  he  loses  fifty  dollars,what should he do?
ME: Umm.HARVEY: “Umm” is not a satisfactory reply. You get no credit for “Umm.”ME: Well,  I  don’t  want  to  be  totally  off  base  here,  but  I  think  the  trader
shouldn’t worry about it.
HARVEY: Wrong answer!ME: I knew it. I knew there was some clever answer you were looking for.I feel like I am working in the law firm again. People asking me ques-tions they already know the answers to.
HARVEY: Try again.ME: The trader should worry about it.HARVEY: Better. But why?ME: Because we’re in the job of making money. Sheez, I don’t know, Har-vey! If you’re telling me that I can’t lose more than 1 percent of my ac-count on a trade, then I really won’t ever be able to trade.
HARVEY: That’s not what I’m saying. Think about it differently. Rememberwhen  we  said  that  without  a  Daylight  Limit,  or  a  money  managementprogram, a good trading system is worthless?
ME: I do remember that. Now I remember. I think I see what you’re tryingto  tell  me.  You’re  saying  that  the  maximum  possible  loss  is  really  de-pendent on the bigger picture.HARVEY: And the bigger picture is?ME: A trading system. If I have a trading system, I know how much thatsystem can lose. I know what it should be losing or winning on a regularbasis. I get it! I can understand this now. I wasn’t trading with any setsystem at all, and I had no idea how much was too much to lose. I didn’tcare,  even.  How  in  the  world  was  I  going  to  ever  know  when  to  stopwith profits or losses? I wasn’t.
HARVEY: Make sense now?ME: Yes. It’s way clearer now.HARVEY: Good. Now, assuming you have a set of rules, a tested system—and  we  are  going  to  talk  about  that  later—how  much  is  too  much  tolose?
ME: This time I’ll guess—10 percent?HARVEY: Higher. It’s 25 percent. That’s the cutoff point.
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ME: The cutoff point? For everyone? No matter who it is? Anyone? What
about the tested system stuff?
HARVEY: Good  questions.  Here  is  what  I’ve  found.  I  have  worked  withthousands  of  traders  who  trade  from  home.  I  have  found  that  if  theydraw down 25 percent of their account, that they are more than 75 per-cent likely to destroy the rest of the account. It’s what I call the 25/75rule.
ME: So, you’re saying, once a trader loses two thousand five hundred dol-lars of a ten-thousand-dollar account, he’s likely to kill the whole thing.HARVEY: Exactly.  He  has  a  75  percent  chance  of  demolishing  the  rest  of
the trading capital.
ME: Why?HARVEY: Give me some reasons that you were willing to continue to lose
today.
ME: Oh! I didn’t think about it that way. I was willing to keep losing for allthe  reasons  we  talked  about—I  didn’t  want  to  show  a  loss.  I  felt  thatonce I’d lost a bunch of the money, it didn’t matter if I lost the rest tryingto get back some of my money. I was trading on revenge.
HARVEY: Revenge trading is like stacking dynamite underneath your trad-
ing capital.
ME: Got  it.  Understood.  I  can  commit  to  this.  I  can  promise  that  I  willnever let myself lose more than 25 percent of my account. Now that I’mthinking of it, I now understand that if I have this as a