What Is Recency Bias in Trading?
Recency bias is a psychological tendency where traders place too much weight on recent outcomes and ignore long-term data or strategy. For example:
Just had three winning trades? You might feel unstoppable and start taking oversized risks.
Faced a string of losses? You may second-guess solid setups and avoid pulling the trigger altogether.
But here’s the truth: recent results do not predict future performance. The market doesn’t care about your last trade. And your trading edge comes from discipline, not from emotional reactions.
Recency Bias: Your Brain’s Worst Trade Idea Ever! by RoadToAMillionClub on TradingView.com
How Recency Bias Destroys Trading Performance
Let’s break down exactly how recency bias impacts your decision-making:
- Overconfidence After Wins: A streak of wins can make you feel like your strategy is flawless. You might increase your position size or abandon risk rules, thinking you’re “in the zone.” That overconfidence is dangerous, it only takes one large loss to undo days or weeks of progress.
- Paralysis After Losses: Conversely, a losing streak can cause hesitation and fear. You may start skipping quality setups or abandoning your proven system. This emotional retreat can lead to missed opportunities and long-term underperformance.
- Revenge Trading: Recency bias fuels revenge trades. You remember the pair that burned you last session and try to “win it back.” This is where rational thinking gets replaced by emotion, and losses compound quickly.
How to Overcome Recency Bias in Trading
Overcoming recency bias isn’t about being perfect, it’s about building habits that create consistency. Here’s how to do it:
- Reset Your Mind Daily: Before each session, take time to reset your mindset. Whether it’s journaling, meditation, or reviewing your trading plan, create distance from yesterday’s emotions.
- Stick to a Proven Plan: Your strategy exists for a reason. Don’t abandon it based on one bad day or a hot streak. Trust your backtesting and follow your rules, even when your emotions scream otherwise.
- Keep a Trading Journal: Logging your trades helps you recognize patterns, especially when recency bias starts creeping in. Journaling allows you to separate emotional decisions from strategy-driven ones.
- Use Fixed Risk Parameters: Avoid scaling your position size based on recent outcomes. Define your risk per trade ahead of time and stick to it, win or lose.
- Remind Yourself: The Market Is Neutral: The market isn’t trying to punish or reward you. It’s just reacting to supply and demand. Your job is to respond with objectivity, not bias.
Real-World Example: How Recency Bias Cost Me
In early 2023, I went on a five-trade winning streak on GBP/USD. Fueled by confidence, I doubled my position size on the next setup, only for it to reverse hard. The loss wiped out all five previous gains. It wasn’t a strategy failure, it was recency bias in action. Since then, journaling and risk limits have been non-negotiable.
Final Thoughts
Recency bias is one of the most common psychological traps in trading. It’s subtle, sneaky, and destructive. But it’s also manageable—if you stay disciplined, journal your emotions, and separate your identity from your recent outcomes.
Your edge is built over 100+ trades, not just your last three. Let the data guide you, not your dopamine.
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