Reflexivity: global financiers engaged in wishful thinking
Psychology, market processes and their correlation in the context of success in trading are one of the most discussed topics among beginner traders. However, the term “reflexivity” isn’t often mentioned in such discussions. The term is normally understood as self-analysis aimed at removing existing problems. To what extent is reflexivity inherent in markets as global processes? In essence, the market can be considered in a psychological context as a huge brain consisting of many unique minds of its participants who take different niches and resolve different tasks in it. How peculiar is reflexivity to those participants whom market processes mostly depend on? Do leading financiers assess correctly the prospects of the global market’s development? Are the global crisis and recession really in the past and is the global economy on the way to recovery? We are going to get the answers very soon. The processes of financial stimulation are either suspended or being phased out in leading economies. If all has been calculated right, they won’t need such a crutch later on. Let’s examine the application of the “reflexivity” term in the financial markets to a particular participant, one of the leading currency pairs and the processes in general.
How a philosopher turned into a trader
Most people associate trading with complicated calculations, lots of numbers, technical or financial education and a mathematical mindset. What if you are a “philosopher” or your profession and interests belong to the humanities, but you wish to test yourself in financial markets? Is it worth beginning and is it possible to reach success?
The life and career of one of the most brilliant modern traders, Nassim Nicholas Taleb, can be an answer to the questions above. A writer, philosopher, and mathematician, this brilliant trader has developed his own unique method of market analysis and trading, whose basic postulate is a philosophical theory of randomness, not in the least complicated regularities and precise calculations.
Obstinacy of the Bank of England, worth billions of pounds
Any trader is aware of the confrontation between the Bank of England and financial speculators. The quintessence of this struggle is George Soros’s speculations. He opened a short trade in British pound worth 10 billion USD, which was ten times more that his own fund’s capitalization. In the end, he earned 1.5 billion USD at the closure. The trade reckoned on the rigidity of state finances and the conservatism of the government, on the psychological component. The indirect effect of the trade was British PM's resignation.
Global economy pumped with cheap credits...new reflexivity?
Reflation processes were another challenge for global economy, after inflation. The crisis of 2008 and collapses of big financial companies triggered the policy of quantitative easing. Its result was a buyout of various financial assets (low quality assets as well) by central banks and unsecured direct creation of money with the view of stimulating growth of consumer lending and demand, and also increasing production of goods and services. How much did this financial policy help to cope with the problem? There has been registered growth in leading economies, a decrease of unemployment rate to pre-crisis values, and an increase in wages for now. Thus, positive trends are outlined, but the time will show how stable they are.
As we can see, the reflexivity term is more or less present on any level, and we cannot neglect associated risks when planning operations in financial markets.
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