Stock Market Glossary
Recency Bias
Tendency to give disproportionate weight to recent experiences.
In brief: Tendency to give disproportionate weight to recent experiences.
Meaning in practice
After price rallies, investors overestimate future returns, and after crashes they underestimate them. Strategic asset allocation and a long-term plan are the sober answer to this psychological trap.
Context for investors and traders
For traders, this term is most useful when preparing and executing an order. Its meaning depends on the venue, liquidity, time frame and order type. A single reading is not a reliable buy or sell decision.
How to use this in practice
Use the term first to describe the situation and add verifiable data: time frame, benchmark, costs and liquidity. Only then does it become an assessment that can be connected to an investment objective and risk budget.
What to keep in mind
Avoid false precision. Many market terms describe probabilities or historical patterns; they neither guarantee a return nor replace the review of a specific security.
