Loading

Market Intelligence › Blogs And Updates

RECENCY BIAS: THE LAST THREE MONTHS ARE NOT THE WHOLE HISTORY

Taking the recent move to be the future, and its effect on allocation

Published by The Retail Trader · JUL 26, 2026 · Trading Psychology

What is happening right now feels the most real. That is why people enter a running sector when it has become the most expensive, and exit a falling one when it is the cheapest.

HOW THIS WORKS

The mind gives more weight to recent examples because they are easy to recall. Three good months feel like a permanent trend, and three bad months like a permanent problem.

As a result, portfolio allocation often chases recent performance — which is a systematically backwards decision.

WHERE IT SHOWS UP MOST

This pattern is repeated in every cycle:
• Selecting funds by looking only at the last one year's returns.
• Raising a sector's allocation after its recent run.
• Abandoning a strategy after two bad weeks.
• Removing an asset class from the portfolio after one bad year.

A PRACTICAL POINT

Allocation decisions should be made on long data, and their review should happen on the calendar, not on the market's moves. A fixed review date is the simplest defence against recency bias.

This article is educational only — it is not a buy or sell recommendation, it makes no claim of guaranteed returns, and it is not advice. Rules, rates and mechanics are changed from time to time by the exchanges, SEBI and RBI, so verify every number yourself with your broker or an official source.

Back to Market Intelligence