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Cognitive Biases
Recency Bias in Trading
The last three trades feel like the truth about your entire strategy. They aren't — they're a tiny, noisy sample. Recency bias is mistaking the last few data points for the trend.
NoVo Options Trading · 2026
Recency bias is the tendency to overweight what just happened and treat it as representative of the whole. In trading, it means the last few trades — or the last hour — quietly hijack your judgment about a system built on hundreds of outcomes.
Two losses ≠ a broken system
After a couple of losses, recency bias screams that your strategy is broken, tempting you to abandon a sound process or tinker with it mid-stream (consistency over being right). But any positive-edge system has losing streaks — they're expected variance, not evidence of failure (risk of ruin). Quitting a good system at its normal drawdown is how traders serially rebuild the wrong wheel.
A hot streak isn't skill
The flip side: a few recent wins feel like proof the market is easy, feeding overconfidence and oversizing (overconfidence). Recent results — good or bad — are a tiny sample dominated by luck (expected value).
Your last three trades are a rounding error in your edge. Judge the system by the hundred, not the handful you can still feel.
The fix
Evaluate a strategy over a large sample, not a session — track expectancy across dozens of trades, not the last few (your equity curve, keeping a journal). A mechanical system is immune by design: it doesn't feel the last loss or the last win — it executes the same rules on trade 200 as on trade 1 (mechanical vs discretionary).
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NoVo is a software tool for market analysis and for executing trades you initiate, not financial advice. This article is general education, not investment advice. Options trading involves substantial risk of loss, up to and including your entire capital. NoVo makes no guarantee of profit, win rate, or performance, and past results do not predict future outcomes. You are responsible for your own broker account, configuration, and trading decisions.