ForexVue
Level 8 · Lesson 7 of 14 · 6 min read

Recency Bias and Anchoring

Your last 3 trades dominate your thinking. Your entry price anchors your decisions. Both are traps.

Laurent Researched and written by

Recency Bias

After 5 winning trades, you feel confident. You increase position size. You take borderline setups. You "know" the next trade will work. Then the streak ends, and the oversized, under-analyzed trade costs you more than the 5 winners earned.

After 5 losing trades, you feel broken. You start questioning your entire strategy. You second-guess valid setups. You miss the next 3 winners that would have started the recovery.

In both cases, recent results are distorting your judgment. Your strategy's edge operates over 100+ trades, not the last 5.

A Real Scenario

A trader's story:

A trader with a 50% win rate strategy has the following sequence: W, W, W, W, W, L, L, L, L. After the 5 wins, they felt like a genius and increased from 1% to 3% risk. After the 4 losses at 3%, they've lost 12% of their account. If they'd stayed at 1% the entire time, the same sequence would have produced: +5% from wins, -4% from losses = +1% net. Instead: +5% at 1% risk, -12% at 3% risk = -7%. The strategy was profitable. The recency-driven size change made it a net loss.

The coin flip test: Flip a coin 10 times. You'll sometimes get 7 heads and 3 tails. Does that mean the coin is "biased" toward heads? No. Small samples produce misleading patterns. Your last 5 trades are a small sample. Don't draw strategy conclusions from them.

Anchoring

You bought at 1.0850. Price drops to 1.0800. You keep thinking "it's 50 pips from my entry." Your decision-making is anchored to 1.0850, a price that has no significance to the market. The market doesn't know or care about your entry price.

What matters: is the current price above or below key S/R? What does the trend say? Is the original reason for the trade still valid? Your entry price is irrelevant to these questions.

The anchoring test:
You're holding a long position at 1.0850. Price is now 1.0805.

Wrong question: "Should I hold to get back to my entry?"
Right question: "If I had no position and price was 1.0805, would I buy here based on the current chart?"

If the answer is no, you should exit. Your entry price of 1.0850 is irrelevant to the current analysis.
Try it yourself: After entering a trade, cover the P/L column on your platform (many platforms let you hide it). Manage the trade purely based on chart levels, not based on how much you're up or down. Notice how different your decisions become when you can't see your entry price.
✅ Check your understanding
Anchoring bias causes you to make decisions based on:
✅ Check your understanding
Each trade is statistically independent of the previous trade.

Key Takeaways

  • • Recency bias: recent results distort your perception of your strategy's true win rate.
  • • 5 wins = "I'm invincible" (overconfidence). 5 losses = "My strategy is broken" (doubt).
  • • Anchoring: you fixate on your entry price, refusing to accept the market has moved against you.
  • • Each trade is statistically independent. Past results don't change the probability of the next trade.
Glossary: Drawdown
Confirmation Bias in Trading The Demo-to-Live Gap