Sunday, November 6, 2011

Recency Bias - Hard to Get Away From

I have recency bias, it is one reason I do this blog.

Because I look back to what I was seeing 3 days ago, or 2 weeks ago, and it helps clarify what is happening now.

It is amazing how the current market moves and news plants can change your view, and not in a good way.

Watch out for recency bias.

The current one----market just ramped up 20%, people are thinking that is the market breaks out, it can ramp up again like that, into Santa rally. 

REALITY- Not likely, but just because it just happened, it is fresh in people's heads.   Bears were burned badly (not me), and bears will be scared to place big short bets, because of recency bias.
Bulls will hold on a bit more than normal, because of bias, hoping for that big "I'm a genius run" upward again.   And so the market will take occasional big dips down, 5 to 8% in order to break their will and get them to sell at the worst time. 

Expect a slightly increasing market into the end of the year, but with big ramps within a range of 50 to 100 ES points. 


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Insightful and Useful Comment!