Questions to consider
1. Peter Gumble, European editor for Fortune magazine, comments,
"Kerviel is a stunning example of a trader breaking the rules, but he's
by no means alone. One of the dirty little secrets of trading floors
around the world is that every so often, somebody is caught concealing a
position and is quickly - and quietly - dismissed... [This] might be
shocking for people unfamiliar with the macho, high-risk, high-reward
culture of most trading floors, but consider this: the only way banks
can tell who will turn into a good trader and who even the most junior
traders to take aggressive positions. This leeway is supposed to be
matched by careful controls, but clearly they aren't foolproof." What is
your reaction to this statement by Mr. Gumble?
Answer:
Well trading nowadays has its ups and downs, but trading is a crucial part of our worlds daily living, trading is now a part of our daily lives as for our food, shelter and day to day consumption. We just need to be vigilant and aware to avoid fraud and be fooled by others.
here are the "22 RULES OF TRADING";
1.
Never, under any circumstance add to a losing position.... ever! Nothing
more need be said; to do otherwise will eventually and absolutely lead
to ruin!
2.
Trade like a mercenary guerrilla. We must fight on the winning side
and be willing to change sides readily when one side has gained the
upper hand.
3.
Capital comes in two varieties: Mental and that which is in your pocket
or account. Of the two types of capital, the mental is the more important
and expensive of the two. Holding to losing positions costs measurable
sums of actual capital, but it costs immeasurable sums of mental capital.
4.
The objective is not to buy low and sell high, but to buy high and
to sell higher. We can never know what price is "low." Nor can we know
what price is "high." Always remember that sugar once fell from $1.25/lb
to 2 cent/lb and seemed "cheap" many times along the way.
5.
In bull markets we can only be long or neutral, and in bear markets
we can only be short or neutral. That may seem self-evident; it is
not, and it is a lesson learned too late by far too many.
6. "Markets
can remain illogical longer than you or I can remain solvent," according
to our good friend, Dr. A. Gary Shilling. Illogic often reigns and
markets are enormously inefficient despite what the academics believe.
7.
Sell markets that show the greatest weakness, and buy those that show
the greatest strength. Metaphorically, when bearish, throw your rocks
into the wettest paper sack, for they break most readily. In bull markets,
we need to ride upon the strongest winds... they shall carry us higher
than shall lesser ones.
8.
Try to trade the first day of a gap, for gaps usually indicate violent
new action. We have come to respect "gaps" in our nearly thirty years
of watching markets; when they happen (especially in stocks) they are
usually very important.
9.
Trading runs in cycles: some good; most bad. Trade large and aggressively
when trading well; trade small and modestly when trading poorly. In "good
times," even errors are profitable; in "bad times" even
the most well researched trades go awry. This is the nature of trading;
accept it.
10.
To trade successfully, think like a fundamentalist; trade like a technician.
It is imperative that we understand the fundamentals driving a trade,
but also that we understand the market's technicals. When we do, then,
and only then, can we or should we, trade.
11.
Respect "outside reversals" after extended bull or bear runs. Reversal
days on the charts signal the final exhaustion of the bullish or bearish
forces that drove the market previously. Respect them, and respect
even more "weekly" and "monthly," reversals.
12.
Keep your technical systems simple. Complicated systems breed confusion;
simplicity breeds elegance.
13.
Respect and embrace the very normal 50-62% retracements that take prices
back to major trends. If a trade is missed, wait patiently for the
market to retrace. Far more often than not, retracements happen...
just as we are about to give up hope that they shall not.
14.
An understanding of mass psychology is often more important than an
understanding of economics. Markets are driven by human beings making
human errors and also making super-human insights.
15.
Establish initial positions on strength in bull markets and on weakness
in bear markets. The first "addition" should also be added on strength
as the market shows the trend to be working. Henceforth, subsequent
additions are to be added on retracements.
16.
Bear markets are more violent than are bull markets and so also are
their retracements.
17.
Be patient with winning trades; be enormously impatient with losing
trades. Remember it is quite possible to make large sums trading/investing
if we are "right" only 30% of the time, as long as our losses are small
and our profits are large.
18.
The market is the sum total of the wisdom ... and the ignorance...of
all of those who deal in it; and we dare not argue with the market's
wisdom. If we learn nothing more than this we've learned much indeed.
19.
Do more of that which is working and less of that which is not: If
a market is strong, buy more; if a market is weak, sell more. New highs
are to be bought; new lows sold.
20.
The hard trade is the right trade: If it is easy to sell, don't; and
if it is easy to buy, don't. Do the trade that is hard to do and that
which the crowd finds objectionable. Peter Steidelmeyer taught us this
twenty five years ago and it holds truer now than then.
21.
There is never one cockroach! This is the "winning" new rule submitted
by our friend, Tom Powell.
22.
All rules are meant to be broken: The trick is knowing when... and
how infrequently this rule may be invoked!
Courtesy of
Master Trader Dennis Gartman's 22 Rules of Trading.
link: http://www.dacharts.com/articles/_22rulestrading.htm
2. What explanation can there be for the failure of SocGen's internal
control system to detect Kerviel's transactions while Eurex detected
many suspicious transactions?
Answer:
"Socgen was brilliant in their achievement, they were the world leader
in derivatives," Decque said. "
Maybe when you are that good, you think
you will never fail."
link: http://www.nytimes.com/2008/02/05/business/worldbusiness/05iht-05bank.9745008.html?_r=1&pagewanted=all
Discussion Questions
1. Do you think that Mike Lynn acted in a responsible manner? Why or why not?
Answer:
Mike Lynn was not a responsible man,
Cisco looks as though, not only do they write bad code, but that they
are dumb enough to give it to folks who will make it public.ISS looks as though they can't control their employees.
Michael Lynn looks like an untrustworthy gloryhound.Instead, he should have leaked it quietly to Josh Wright or someone
similar and asked them to submit it via bugtraq and Cisco's own bug
tracker. Or done it anonymously himself.This will get the problem solved more quickly and with less fuss, no
lawsuits, he keeps his job, Cisco still fixes the vuln, he reports it
through the ISS-Cisco partnership and ISS looks good. ISS releases a
signature for their IPS in advance of the patch, Cisco announces that
they've found a vuln and fixed.
courtesy of
http://www.schneier.com/blog/archives/2005/07/cisco_harasses.html
2. Do you think that Cisco and ISS were right to pull the plug on Lynn's
presentation at the Black Hat conference? Why or why not?
Answer:
The "stipulated permanent injunction" faxed to Rick Forno contains an interesting paragraph:
"Lynn...
acknowledges that ISS did not authorize him to present [his talk] and
which he had notified ISS he would not present. In particular, ISS had
directed no presentation or live demonstration would be made which
included disassembled Cisco code and the 'pointers'. (ISS and Cisco
stipulate that they had prepared an alternative presentation designed to
discuss Internet security, including the flaw which Lynn had
identified, but without revealing Cisco code or pointers which might
help enable third parties to exploit the flaw, but were informed they
would not be allowed to present that presentation at the conference)."
link:
http://taosecurity.blogspot.com/2005/07/iss-pursues-lynn-presentation-copies.html
3. Outline a more reasonable approach toward communicating the flaw in
the Cisco routers that would have a led to the problem being promptly
addressed without stiring up animosity among the parties involved.
Answer:
I guess we can wrap up the Cisco and ISS vs.
Mike Lynn and Black Hat saga by mentioning the new Cisco security advisory released
today: IPv6 Crafted Packet Vulnerability, which
states:
"(IOS) Software is vulnerable to a Denial of Service (DoS) and potentially
an arbitrary code execution attack from a specifically crafted IPv6 packet. The
packet must be sent from a local network segment. Only devices that have been
explicitly configured to process IPv6 traffic are affected. Upon successful
exploitation, the device may reload or be open to further exploitation."
Assuming these details is correct and who knows now? This is not an earth-shattering discovery.
However, this may have been a sample vulnerability Mike demonstrated to explain
his technique. He may have picked this vulnerability because he thought it
would not affect much of the Internet, but he needed to let people know that
his technique was already in use by malicious parties.
link: http://www.cisco.com/en/US/products/products_security_advisory09186a00804d82c9.shtml
