Trading psychology
What is recency bias and how does it distort risk perception after a string of consecutive wins?
By Easy Money Scanner · Educational reference · Not investment advice
The short answer
Recency bias causes traders to overweight recent outcomes, such as assuming a winning streak will continue or a losing streak reflects a permanently broken strategy.
How it works
This bias can lead to increased position sizing after wins, raising risk exposure precisely when overconfidence is highest, or conversely abandoning a sound strategy after short-term losses.
An example
After five consecutive winning trades, a trader might double position size, exposing the account to much larger losses if the streak reverses.
Risk & limitations
Statistically, short streaks are common even in systems with no true edge change; sizing decisions should be based on tested risk rules, not recent results.
Examples are hypothetical, not trade recommendations. US contract and regulatory references do not automatically apply in Canada. Rules, margin requirements and broker policies can change; confirm them with the relevant authority and your broker.