What is Recency Bias?
Quick Answer: Recency bias makes traders overweight recent results, leading to constant system tweaks and emotional decision-making.
Understanding Recency Bias
Recency bias is the tendency to overweight the latest outcomes when forecasting the future. Traders overreact to short streaks—raising risk after wins or abandoning a solid system after losses—because emotions override statistical evidence.
How It Hurts Performance
Recency bias fuels strategy hopping, inconsistent position sizing, and reactive trades that ignore the system’s long-term expectancy. It undermines the edge painstakingly demonstrated in backtests and journals.
Mitigation
Review performance on fixed schedules (e.g., every 50 trades). Track rolling win rate, expectancy, and drawdown before changing parameters, and use a separate sandbox account for experiments.
Integrate with Journaling
Log emotions after winning and losing streaks. Revisiting those notes highlights when recency bias crept into decisions and reinforces disciplined execution.
Balance the Narrative
Media headlines amplify recent events. Counter them with longer-term data—macro trends, seasonality, higher-time-frame charts—and scale adjustments gradually instead of slashing or doubling risk overnight.
Fighting recency bias is an ongoing process. Build checklists, automate parts of your decision tree, and discuss results with trading peers or mentors who can provide objective feedback. Awareness plus structure keeps the most recent trade from dictating your entire approach.
Related Terms
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