No, its not fair. Get over it.
Some disgruntled traders believe that the markets are rigged in favour of the institutions. That retail traders can never get an edge. Some believe brokers are out there to flush our stop losses and that they take the other side of our trades and then manipulate the position against us. Is this fair? Does this really happen? Do retail and private traders even stand a chance?
The starting point is examining your beliefs. The late Dr. van Tharp always used to say that we don't trade the market, we trade our beliefs about the market.
If you believe markets are rigged and there is nothing you can do, you are diminishing your edge. You need to examine your beliefs and decide if they are useful for your trading, or detrimental.
I wrote an article on beliefs recently. Click here to read it.
I highly recommend assessing your beliefs about markets. Reading the above article will help you.
I recently looked at a chart of the EUR/GBP. I could clearly see what I call a "retail flush". A flush is when a market trades through a key support or resistance area instead of finding support there and then continues to trade away from the support or resistance area as would be expected. Basically, the theory is that a large number of retail traders put their stops just below key support areas or just above key resistance areas. Institutional traders who need volume for their large orders know that there is a lot of volume sitting at these areas. and so they force the market through these levels using their large buying power to achieve their required volume. Another theory is that CFD brokers force clients out of positions at these levels as they profit from taking the other side of these trades.
Either way, I have seen this play out in markets on a number of occasions. Here are two occasions in the EUR/GBP currency pair that I saw saw while trading.
Notice how the market pushes through a key resistance area. I got stopped out and then the market continued down as expected. You'll notice here that I cut half my position above resistance but left half on in case it was a flush. This way I manage my risk but also don't get caught in the flush.
Here is another example on the same currency pair.
In this example I include a snapshot of IG markets sentiment indicator, which shows where their clients are positioned. You can see that the majority of retail clients are long this pair. Then you get the flush ( see the red circle). The market pushes through support to flush out these retail longs who have their stop losses below support. IN this real example, I actually go short the break down but get stopped out shortly thereafter, once I identified this trade as a flush.
I know these flush outs do occasionally occur, but my belief is that I can navigate them through excellent position sizing and precise risk management. I trade around the noise, I don't get derailed by it.
I also follow sentiment closely to identify high probability scenarios, by using these two resources:
MyFXbook sentiment indicator
DAILY FX client sentiment
These two resource tell me where the bulk of the retail FX traders are positioned and I can then be aware of where the institutions are likely to flush stops.
You can either get upset and blame the market for your losses because its unfair, or you can work with what you have. It all depends on your beliefs. Is it unfair, are you a helpless victim of the system?
What is Fairness?
Fairness is often perceived as an inherent right, a balance where everyone gets what they deserve. However, the concept of fairness is highly subjective. What one person deems fair might seem unfair to another. William Goldman aptly captured this sentiment when he asked, “Who says life is fair, where is that written?”
Fairness: A Perception and Belief
Fairness is not a tangible thing but a perception, a belief shaped by our experiences and expectations. This means we have the power to change it. The idea that life must be fair is not grounded in any universal law; it's a construct of our minds. By altering our perception, we can change how we feel about fairness.
The Wisdom of Stoicism
Stoicism, an ancient philosophy, teaches us that while we cannot control external circumstances, we can control our responses to them. The unfairness of life becomes an opportunity to practice virtues like resilience & patience. Instead of lamenting over what we can't change, Stoicism encourages us to focus on what is within our power to alter—our reactions and attitudes.
The "It's Not Fair" Argument
In negotiations or conflicts, the phrase “But it's not fair” is often used when one party lacks substantial arguments to support their position. It’s a signal of vulnerability and a lack of concrete evidence. When your adversary says “It’s not fair”, their argument is done. This moment should not necessarily be seen as an opportunity to attack but rather as a chance to navigate the situation with care and empathy.
Shifting Your Perspective
Peter Ustinov once said, “Life is unfair but remember sometimes it is unfair in your favor.” This reminder helps us focus on the positive aspects of life’s randomness. Be sure to make the most of these situations. Similarly, author and illustrator Mary Engelbreit advised, “If you don’t like something, change it. If you can’t change it, change the way you think about it.” Unfairness is a belief not a thing, so you can change it.
The Pitfalls of Victimhood
Viewing yourself as a victim of unfairness keeps you trapped in the past and fosters a sense of powerlessness. Instead of dwelling on how life has wronged you, it's more productive to evaluate and challenge your beliefs about fairness. This introspection can significantly reduce the emotional impact of perceived injustices.
Evaluating and Changing Beliefs
I have found that evaluating your beliefs and then testing or changing them can have a profound impact. For instance, beliefs such as “I’m such an unlucky person” or “Life is unfair” lose their power when scrutinized thoughtfully. Spend time with these thoughts instead of fighting them, or getting emotional about them. This process might sound counterintuitive, but it helps diminish the negative impact of these beliefs over time.
Embracing the Markets Unfairness
Life's unfairness is not always a disadvantage. Remembering that sometimes life is unfair in our favor can help us stay positive and grateful. When life deals us a favorable hand, we should make the most of it. When it doesn’t, get over it. In my example above I show how I have used a perceived unfairness"in markets in my favour.
As a trader, your beliefs shape your trading success. For more information on the late Dr. van Tharp's views on trading beliefs, read this article:
The Gifts of Dr. van Tharp
I also highly recommend his book Super-trader.
Gary Player, a renowned golfer, once said, “The harder I practiced, the luckier I got.” This underscores the idea that effort and perseverance can tilt the scales of luck in our favor, even in an unfair world.
So, when faced with life's inequities, remember: change your beliefs, change your responses, and get over it.
When faced with unfair market conditions: assess your beliefs about markets, are these beliefs helping your trading? If not, re-assess and deal with it. If you do not you risk significantly under-performing relative to your potential.
Trade well,
Justin
P.S. If you need any help assessing your beliefs or testing your beliefs about markets, reach out to me. Happy to help.
