Recency Bias in Crypto Trading

Recency bias is the tendency for investors to give greater weight to recent events than to older, historical data. In the context of crypto trading, this often manifests when traders assume that the most recent price trend will continue indefinitely.

If an asset has been rising for weeks, traders may ignore long-term cycles or fundamental weaknesses, believing the current momentum is the new permanent state. Conversely, after a sharp market correction, investors may become overly pessimistic, fearing a total collapse despite historical evidence of market resilience.

This bias leads to pro-cyclical behavior, where traders buy at the top and sell at the bottom, directly opposing the principle of buying low and selling high. Overcoming this requires disciplined adherence to long-term strategy rather than reactive trading based on immediate price action.