Recency bias means giving disproportionate weight to events that have just happened. In practice, the last trade or the last week can appear to describe the whole strategy even when the observed sample is too small.
How the term is used
The term applies when, for example, three gains prompt someone to increase risk or three losses lead them to abandon a method without comparing that sequence with enough data and rules set in advance. It describes a decision process; it does not prove that the next price move will be up or down.
Technical limit
Recent information may be genuinely relevant: new evidence, a constraint or a regime change can justify a review. The bias is therefore not “looking at recent data.” It is giving those data disproportionate weight without a consistent sample, horizon and criterion. The full Recency bias entry develops examples, checks and limitations.
Sources
- CFA Institute, Asset Allocation with Real-World Constraints — 2026 refresher reading — Frames how decisions may be reviewed when real-world conditions and constraints change.
- CFA Institute Research Foundation, Risk Profiling through a Behavioral Finance Lens — Defines recency bias as emphasis on recent events and possible extrapolation of patterns that do not exist.