What is Reflexivity in Markets?

Understanding Reflexivity

Reflexivity, popularized by George Soros, argues that market participants’ perceptions can influence fundamentals, creating self-reinforcing feedback loops. Prices don’t just reflect reality—they help shape it.

Real-World Examples

• Currency spirals: Rising FX attracts capital, which strengthens the currency further until expectations reverse.
• Asset bubbles: Higher prices fuel optimism, bringing in more buyers and easier financing.
• Debt crises: Falling asset values weaken balance sheets, prompting forced selling that accelerates declines.

Managing the Risks

Reflexive cycles end abruptly. Use trailing stops, scale-out plans, and scenario analysis to protect profits. Combine price action with macro evidence to determine whether expectations still reinforce reality.

Practical Playbook

• Define context on higher timeframes, then execute on intraday charts.
• Wait for confirmation (acceptance, momentum, or confluence) before entry.
• Size positions conservatively and place stops at clear invalidation levels.
• Adapt to session dynamics; conditions shift between Asia, London, and New York.

Common Pitfalls

• Forcing trades without alignment across timeframe, structure, and catalyst.
• Ignoring spreads/slippage during news or thin liquidity.
• Moving stops or adding to losers instead of honoring the plan.

Illustrative Example

Build a simple playbook: identify bias, mark key zones/levels, define triggers and invalidation, and pre‑set targets for 2–3R. Journal results by session and setup to refine rules. Over time, consistency—not prediction—drives outcomes.

Practical Playbook

• Define context on higher timeframes, then execute on intraday charts.
• Wait for confirmation (acceptance, momentum, or confluence) before entry.
• Size positions conservatively and place stops at clear invalidation levels.
• Adapt to session dynamics; conditions shift between Asia, London, and New York.

Common Pitfalls

• Forcing trades without alignment across timeframe, structure, and catalyst.
• Ignoring spreads/slippage during news or thin liquidity.
• Moving stops or adding to losers instead of honoring the plan.

Illustrative Example

Build a simple playbook: identify bias, mark key zones/levels, define triggers and invalidation, and pre‑set targets for 2–3R. Journal results by session and setup to refine rules. Over time, consistency—not prediction—drives outcomes.