Is your trading being affected by Recency Bias?

Have you ever been in a situation whilst trading where you've felt ecstatic after a series of wins that you begin to feel as if the streak you're on will last forever?

Fast forward a few trades later and suddenly you aren't feeling so great anymore after a string of losses has placed you in the same position as when you started from. Quite a demotivating encounter to be dealt yet one of the most crucial aspects of trading is shone in the spotlight. 

The Recency Bias occurs when your mind becomes accustomed to an existing pattern recurring at a particular moment. The frequency of this pattern is enough to convince your mind of it's relative ease due to it's repeated presence but more importantly to assume that such pattern will remain indefinitely.  

This common misconception is often seen in the early developmental stage of a trader's career when the acceptance of the uniqueness of each event isn't fully understood. Not only does it negatively impact a trader's confidence but it also has the consequence of reaching a conclusive opinion that the effectiveness of the pattern as futile. 

Nothing can be farther from the truth in realising a patterns full potential lies not in the consistency of generating a signal but in the most favourable conditions in which it works well in. As a newcomer to the trading game, you can't be for certain of these conditions when you've only implemented the idea once. Added to the fact that there are a number of different conditions the market undertakes at various times, it's becomes easier to see when deciphering the truth that trading isn't an overnight success story. 

Taking for granting the status quo in markets is a sure way of blindsiding your view when it comes to making the important decisions during the process. Being cognisant of the markets deceptive ways is possibly one way to avoid falling through the cracks however the need to practice it continuously is probably the most difficult part. It requires discipline and patience to learn from it that separates the great traders from the rest who don't make it. 

There's a saying in trading that goes "You're only as good as your last trade". 

This speaks so closely when referring to bias, especially the recency type. One moment you have it and the next it's gone. 

I tend to think of it as being similar to the actors and actresses of Hollywood. There are those who crave the attention of the spotlight  and become more famous for their sideline antics than actual performances but nonetheless get fed up with it after discovering the infringement on their personal lives and how closely people will follow their every moves.

Then there are others who find it more worthwhile concentrating on their roles and producing the best performance that distinguishes them from everyone else that there's no need to go looking for the spotlight, it merely comes to them.