The bias
The human brain weights recent events far more than distant ones. A trader who just took a hard loss will trade smaller than their edge warrants; a trader on a hot streak will trade larger than their edge warrants. Both deviations are costly.
Defense 1: pre-commit
Decide position size and stop placement before you enter, ideally against a written checklist. Discretion after entry is where recency bias does its damage.
Defense 2: journal
Log every trade with a one-line rationale. After 50 entries you'll see patterns your memory smoothed over.
Defense 3: zoom out
Review weekly and monthly P&L, not daily. Daily variance is dominated by luck; the signal is in the larger samples.
Not financial advice
This lesson is educational material, not personalized advice. Examples and case studies are illustrative. Trading carries real risk of loss — never invest money you cannot afford to lose, and consult a licensed professional for guidance specific to your situation.