After a run of winning trades, the next one can feel like a sure thing. After a bruising loss, every setup can look like a trap. Both reactions come from the same quirk of human thinking, recency bias, and it is one of the most common reasons traders drift away from a perfectly sensible plan.
What recency bias means
Recency bias is the tendency to give too much weight to recent events when judging what will happen next. The latest experience feels vivid and important, while older experiences fade, even if they are just as relevant.
In everyday life, it is often harmless. In markets, it can lead you to assume that whatever has just happened will keep happening, or that your last few trades are a reliable guide to your next one.
How it shows up in markets
Extrapolating trends. When a market has risen for several weeks, it is easy to assume it will keep rising. When it has been falling, it can feel as though it will never stop. Recent price action starts to feel like a forecast.
Overreacting to news. A single strong or weak data release can dominate thinking for days, even though one figure is rarely enough to change the bigger picture.
Forgetting past regimes. Traders who started during a calm, steadily rising market may struggle to imagine a sharp reversal, and those who started during a crash may struggle to trust any rally.
How it affects your own decisions
Recency bias is not only about how you read the market. It also affects how you judge yourself.
After wins. A winning streak can lead to overconfidence. Position sizes creep up, rules get relaxed and the trader starts taking setups they would normally skip. This is often when a large loss arrives.
After losses. A losing streak can do the opposite. The trader becomes hesitant, cuts trades too early or abandons a method that was working well over a longer period. Our guide to trading drawdowns explains why losing runs are a normal part of any approach.
Changing strategy too often. Jumping to a new method after a few bad trades, then another after a few more, means you never collect enough evidence to know whether any of them work.
Why the current market is a good example
Periods like the present make recency bias especially tempting. US shares have been setting records, and when a market has been rising, it can feel natural to assume the move will simply continue. At the same time, US government bond yields have climbed to their highest level since 2002, which is a reminder that conditions can shift. Holding both facts in mind, rather than fixating on whichever happened most recently, is the kind of balance that helps.
Practical ways to manage it
Judge results over a meaningful sample. Rather than reviewing every trade on its own, look at results in batches of twenty or thirty. That gives a fairer view of whether your process is working.
Keep a written plan. A plan written in advance acts as an anchor when recent events pull your thinking in one direction. If you find yourself breaking it after a streak, that is a warning sign.
Fix position sizing rules. Deciding size by a set rule, rather than by how confident you feel, stops winning streaks from inflating your risk.
Look at longer timeframes. Zooming out on a chart can put a recent move into context and reveal whether it is unusual or part of a familiar pattern.
Use a journal. Recording your reasoning and emotions alongside each trade helps you spot when recent outcomes are driving decisions. It works well alongside awareness of related traps such as fear of missing out.
The goal is balance
Recent events do matter. Markets change, and ignoring new information would be its own mistake. The aim is not to dismiss what has just happened but to weigh it fairly alongside everything else you know.
If you would like a clearer sense of how biases like this may be shaping your own trading, our free trader assessment is a quick and useful way to find out where you stand.
