In this post l explain the single psychological trait that causes almost every human to think the same way. I also explain how this can affect your Forex trading health. I'm referring to Recency Bias.
Recency Bias is the process of being influenced in thought and then action by the most recent events that have occurred. This is not simply a trading phenomenon but one that is present in every aspect of life.
Recency Bias in Forex Trading
In trading, Recency Bias means that the most recent trades will cloud your view of the entire trading strategy or system. A few losses can cause you to feel that the system is not working. When this happens you may think you need a new one.
This can occur despite the fact that you probably have little or no actual evidence of this being the case. In fact, your strategy is most likely going through simple draw down. The net effect of this is that any trading strategy you have will last only until it results in a losing position.
You may change to a different strategy when the overall losing position is generated. You may stop taking trades altogether and start increasing your leverage to quickly make back the initial losses. This can result in losing more money from your account. It can even mean your account blowing up completely.
Recency Bias is pretty much linked to all common trading mistakes that you freely read about!
Instead of trying to find ways to overcome all of the different individual errors that traders make, surely it would be better to stop the consequences of Recency Bias in the first place!
So how exactly can do you negate the impact of Recency Bias and cut out almost every mistake that traders are prone to making?
The answer is through the simple act of recording your trading data and then regularly analyzing the results. This serves the primary goal of reducing the impact of Recency Bias. Because it allows you to actually see, at a glance, how your strategy is performing overall.
If you are going through a draw down or a series of losses, you will almost instantly know whether this something to be concerned about. Remember that something only needs changing when the overall performance shows concern beyond doubt. This is when you should take action.
Having this information at hand will improve your mindset. And it will almost immediately eliminate or reduce the amount of mistakes that you make when under the influence of Recency Bias.
At no time should anyone view the information presented anywhere on this website as advice, recommendation or proven. Everything reflected is merely opinion and may not be accurate. The purpose of the site is to express the opinions and views of Jarratt Davis. There is no intention to offer specific help, advice or suggestions to anyone reading any of the content posted here.
Editors’ Picks
EUR/USD hits two-day highs near 1.1820
EUR/USD picks up pace and reaches two-day tops around 1.1820 at the end of the week. The pair’s move higher comes on the back of renewed weakness in the US Dollar amid growing talk that the Fed could deliver an interest rate cut as early as March. On the docket, the flash US Consumer Sentiment improves to 57.3 in February.
GBP/USD reclaims 1.3600 and above
GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.
USD/JPY drops back below 157.00, as focus shifts to Japan snap election
USD/JPY is back in the red below 157.00 in the Asian session on Friday. The Japanese Yen recovers ground against the US Dollar amid some profit-taking ahead of Japan's snap general election on Sunday. The preliminary reading of the Michigan Consumer Sentiment Index report for February will be released later on Friday.
Editors’ Picks
EUR/USD: US Dollar to remain pressured until uncertainty fog dissipates Premium
The EUR/USD pair lost additional ground in the first week of February, settling at around 1.1820. The reversal lost momentum after the pair peaked at 1.2082 in January, its highest since mid-2021.
Gold: Volatility persists in commodity space Premium
After losing more than 8% to end the previous week, Gold (XAU/USD) remained under heavy selling pressure on Monday and dropped toward $4,400. Although XAU/USD staged a decisive rebound afterward, it failed to stabilize above $5,000.
GBP/USD: Pound Sterling tests key support ahead of a big week Premium
The Pound Sterling (GBP) changed course against the US Dollar (USD), with GBP/USD giving up nearly 200 pips in a dramatic correction.
Bitcoin: The worst may be behind us
Bitcoin (BTC) price recovers slightly, trading at $65,000 at the time of writing on Friday, after reaching a low of $60,000 during the early Asian trading session. The Crypto King remained under pressure so far this week, posting three consecutive weeks of losses exceeding 30%.
Three scenarios for Japanese Yen ahead of snap election Premium
The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.
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