Recency Bias: Forgetting the Crash of Yesterday

Listen, I’ve been doing this for nearly two decades, and I’ve watched the same film play on repeat so many times I could recite the bloody script backwards. A market crashes—properly crashes, mind you, not just a 2% pullback that makes retail traders weep into their energy drinks—and for about 48 hours, everyone’s a risk manager. Position sizes shrink. Stop losses get tighter. Some brave souls even admit, quietly, that maybe they were overleveraged.

Then Thursday comes around.

The market bounces a couple hundred pips, the news cycle moves on to something shiny, and suddenly Wednesday’s apocalypse might as well have happened in the Paleolithic Era. By Friday, you’re right back where you started: convinced that this time is different, that you’ve learned, that the market owes you a mulligan because you survived the last crash.

Spoiler alert: it doesn’t. You haven’t. And it doesn’t.

The Recency Bias Trap: Why Your Brain Is Sabotaging You

Here’s the thing about the human brain—and I’m speaking as someone who’s watched it betray hundreds of traders—it’s absolutely brilliant at some things and catastrophically stupid at others. Pattern recognition? Brilliant. Risk assessment? Catastrophic.

Recency bias is when your brain decides that whatever happened five minutes ago is far more important than what happened five months ago. It’s evolutionary, innit? Back when we were running from sabre-toothed tigers, remembering that the current tiger was more relevant than the tiger from last season kept us alive. Lovely. Survival instinct.

Now apply that to trading.

A trader gets absolutely demolished in a flash crash. Margin call. Sweating. The whole nine yards. But then—and this is crucial—the market reverses. Volatility collapses. Everything goes quiet and smooth. Within days, that crash feels like a fever dream, something that happened to someone else.

So what does our trader do? Doubles down on the exact same strategy that got them liquidated. Because, naturally, the recent experience (the bounce and recovery) is far more psychologically relevant than the preceding experience (the complete obliteration of their account).

I’ve seen this with emerging market currencies after a central bank crisis. I’ve seen it with crypto during every single bull trap since Bitcoin hit $100. I’ve seen it with EURUSD after every single flash crash. The pattern is so predictable you could write it down and give it to a trained monkey.

The Illusion of a “Fresh Start”

One of the most insidious tricks your brain plays is this: it decides that each week, each month, each quarter is a completely fresh start. A new canvas. A new beginning.

Bollocks.

The market doesn’t reset. Your account doesn’t reset. Physics doesn’t reset. If you were overleveraged before, you’re overleveraged now. If your stop loss was too tight, it’s still too tight. If your risk-to-reward ratio was dogshit, it’s still dogshit.

But recency bias makes you believe otherwise.

I watched a trader—solid bloke, actually competent at technical analysis—blow up his account in March 2020 during the COVID crash. Wiped out. Position sizing was insane; he was treating the market like it was a casino and he’d had three whiskeys too many. Come May, after a decent recovery bounce, he was back at it. Same leverage. Same reckless position sizing. Same everything.

By August, he’d blown up again.

When I asked him why—and I genuinely wanted to understand his thinking—he said something that’ll stick with me forever: “I forgot how bad it was.”

He forgot. Not intellectually—he remembered the facts. But emotionally, psychologically, the memory had faded enough that it stopped feeling real.

The Calculator Can’t Calculate Hubris

Here’s where it gets interesting for you lot using forex calculators. You can plug in numbers all day long. position size calculator says you should risk £200. Pip value calculator shows you the exact return. Lot size calculator does its job perfectly.

But none of these tools—and I say this as someone who respects good software—can calculate for stupidity.

A calculator can’t make you remember that last week you ignored it and went 5x oversize because you “had a really good feeling” about the pair. It can’t force you to remember the crash. It can’t inject humility into your decisions.

What a calculator can do is sit there like an impartial witness, showing you what should happen if you follow the rules. Whether you actually follow them is between you and your therapist.

The Antidote: Documentation Over Delusion

So how do you fight recency bias? Because you absolutely must, or the market will happily separate you from your money.

Write it down. All of it. Not in some fancy journal with inspirational quotes—I’m not running a wellness retreat here. Write down:

When things go wrong: The exact reasons. The leverage. The position size. The market conditions. Your emotional state. Everything. Make it clinical. Make it undeniable.

When things go well: Same thing. But also note what didn’t go wrong. Because survivorship bias will try to convince you that your recklessness was genius, when actually you just got lucky.

The rules: Write down what you’ll do during the next crash. Not what you think you’ll do. Not what sounds good. What you actually will do. Because when the crash comes—and it will—your brain will be in panic mode, and recency bias will be screaming at you to abandon plan.

The math: Use your calculator now. In the quiet times. Lock in what 2% risk actually looks like on your account. 5%. 10%. Engrave those numbers in your brain so that when adrenaline is coursing through your veins, they’re not suggestions—they’re immovable facts.

The Reality Check

Here’s the bit that hurts: this will still happen to you. Even knowing about recency bias, even reading this article, even nodding along, you’ll still find yourself making a decision in three months that you know—logically, absolutely know—contradicts everything you’ve learned.

That’s not weakness. That’s neurobiology. Your brain is wired to forget pain and amplify pleasure. The market counts on this.

But—and this is a substantial but—you can at least know it’s happening. You can write it down. You can use your tools properly. You can be the one trader in a thousand who actually learns from yesterday’s crash rather than having amnesia by Friday.

Is it profitable?

Absolutely.

Is it easy?

Piss off.

Now go use your calculator properly.

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Disclaimer: Past performance is not indicative of future results. Trading carries substantial risk of loss. Don’t blame the calculator when you ignore it.