Education
Now Reading
Recency Bias
52

Recency Bias

Recency Bias

by The MoleDecember 1, 2015

Over the past two months we have been navigating some pretty volatile tape which in the process offered us several swing trading opportunities. As a result I have been pretty pleased with myself after serving up consecutive profitable entries near medium term inflection points. However upon a bit of meditation earlier today I realized that my own ego may be getting the better of me. For one it is very tempting to engage in calling turning points after successfully having done so in the recent past. That little psychological trap probably lies somewhere in the realms of illusion of control bias which is to believe that one can foresee or even influence future outcomes that one has no control over.

2015-12-01_volatility

The second cognitive bias we may all be chronically suffer from is recency bias, which is the tendency to weigh recent data or experience more than previous data or experience. One aspect of recency bias that mostly remains ignored is that of volatility cycles and market periods. I’m sure you all remember the dreadful sideways tape we had to endure most of this year until mid August. When it finally resolved volatility literally exploded and over the past few weeks we have enjoyed the corrective trending period that ensued after a volatile sell-off and a sideways high volatility consolidation.

However, if you look at the chart above you will realize that the current volatility range is again starting to resemble the type of tape we suffered through all the way into late summer. Given the recent low volatility trending action it is easy to expect more of the same but I should caution everyone from jumping to conclusions. Clearly we are heading into what is statistically a bullish trending period. However, even if we climb to new highs and paint the yearly candle green it is possible that we are once again facing more sideways churn in the initial months of January. The take away point here should be that a) momentum is slowing down and b) that market conditions for most of the year have produced an equilibrium between buyers and sellers. Clearly we are at the tail-end of a seven year bull market and need to keep in mind that LT charts move like glaciers. Which means possibly more sideways churn and consolidation before equities are ready to produce a meaningful correction.

2015-12-01_ES_shake_out

In the past nine sessions we have been stuck in the same range, so we’re either correcting sideways or are on the cusp of another downside correction. I don’t really have much to add here at the moment and as I’m trailing the remainder of my positions near 2077 (which was almost called in yesterday) there is no reason to touch this campaign.

2015-12-01_EURJPY_update

EUR/JPY Update – it was a bit of a long shot but it seems to be paying off. Moving my stop to break even here. BTW, I almost got taken out there and wisely had decided to keep my stop below the lower 100-hour BB. Once again the policy of wider stops thus sacrificing a bit of leverage for better protection paid off.

2015-12-01_AUDCHF_update

AUD/CHF is turning into a textbook trend trade. Very few people would have taken a long position outside the upper 100-day Bollinger but it is exactly there where short squeezes can happen. And once a forex pair gets going it often runs like hell. I took partial profits a bit over an hour ago and will trail the remainder of my position near the current daily NLBL.

evil_separator

It's not too late - learn how to consistently trade without worrying about the news, the clickbait, the daily drama and misinformation. If you are interested in becoming a subscriber then don't waste time and sign up here. The Zero indicator service also offers access to all Gold posts, so you actually get double the bang for your buck.

Please login or subscribe here to see the remainder of this post.

Cheers,

About The Author
The Mole
Mole created Evil Speculator amidst the chaos of the financial crisis in early August of 2008. His vision for Evil Speculator is a refuge of reason, hands-on trading knowledge, and inspiration for traders of all ages and stripes. You can follow him and his nefarious schemes at the usual social media waterholes.
Enjoyed this post? Consider a small donation to keep those evil deeds coming!

BTC: 1MwMJifeBU3YziDoLLu8S54Vg4cbnJxvpL
BCH: qqxflhnr0jcfj4nejw75klmpcsfsp68exukcr0a29e
ETH: 0x9D0824b9553346df7EFB6B76DBAd1E2763bE6Ef1
LTC: LUuoD6sDWgbqSgnpo5hceYPnTD9MAvxi6c
PayPal: https://paypal.me/evilspeculator