The story
Alex had been watching Bitcoin rise for three consecutive weeks.
Every dip was followed by another rally. His portfolio was growing, crypto influencers were celebrating, and bearish predictions seemed increasingly ridiculous.
Alex drew a simple conclusion: the bull market was here to stay.
He increased his position and added leverage.
When a friend warned him that markets could reverse, Alex laughed.
“Look at the chart. Every dip gets bought. Why would this time be different?”
Then Bitcoin dropped 12% in two days.
His leveraged position was liquidated before the recovery began.
Alex had mistaken a recent pattern for a permanent rule.
He wasn’t predicting the future. He was extrapolating the past few weeks.
The visual metaphor
Imagine a man standing beneath an enormous green staircase made of rising candlesticks.
He climbs confidently toward a golden moon, convinced the stairs will continue upward forever.
But just beyond the clouds, the staircase ends abruptly.
The man is so focused on the steps beneath his feet that he cannot see what lies ahead.
One final green candle glows brightly behind him. Below, a single red candle begins to form.
He keeps climbing.
The psychology behind it
Recency bias is the tendency to give disproportionate weight to recent experiences when making judgments about what is likely to happen next.
In crypto, it can work in both directions:
- After weeks of rising prices, investors assume gains will continue.
- After a sharp crash, investors become convinced that prices will keep falling.
- After several successful trades, investors mistake a favorable market environment for exceptional personal skill.
Recent information matters, of course. The problem arises when we treat a short sequence of events as if it reliably predicts the future.
Crypto markets move through different regimes. Strategies that work during a strong uptrend can fail spectacularly when conditions change.
A trend is evidence about the present, not a guarantee about tomorrow.
The practical takeaway
Before increasing your exposure because a trend looks unstoppable, ask yourself:
“Am I making this decision based on a complete analysis, or simply because of what happened recently?”
Review longer timeframes, consider alternative scenarios, and decide in advance how much you can afford to lose.
Don’t assume the next week will resemble the last three.
The market doesn’t owe you another green candle.
— The Behavioral Investor — Understand yourself.
