Avoiding Recency Bias and F.O.M.O. (Fear of Missing Out)

In my last educational article, I discussed the transition from high- to low-volatility regimes and how difficult it can be to identify those shifts in real time. Along those same lines, I want to address another major challenge traders face: recency bias and the fear of missing out on new trades.

This is one of the more difficult aspects of trading psychology; even experienced traders struggle with it, especially after a strong winning streak. To achieve long-term consistency, you must be careful not to let recent results influence your decision-making or allow FOMO to push you into lower-quality setups.

This is, of course, easier said than done. The way we combat this is by relying on objective Elliott Wave analysis to understand the structure in front of us, combined with a defined system that provides a clear framework for trade decisions. This is exactly what we have spent the past eight years developing within the VIX and Index/Sector Trading Service, and it is now available to all of our members.

What we’ve learned over time is that trading activity naturally comes in waves. There are periods of high trade volume, followed by periods where opportunities are far more limited. This is simply a function of market conditions; not every environment produces high-probability setups that meet our strict criteria.

With the addition of Mark to the team, we’ve been able to increase coverage across more instruments, which has helped identify additional valid opportunities. As a result, what might have historically been slower months turned into productive and profitable periods this year. That said, slower stretches will still occur, and they are a normal part of the process.

It’s important to understand that many times we cannot predict in advance when high- or low-activity periods will occur. Those shifts often happen quickly and without much warning. That’s why we emphasize staying focused on the present, ready to act when the right setup develops, but not forcing trades based on what has already happened.

Decisions should always be based on the current structure, not recent outcomes.

A good example of this was the summer of 2024. July was shaping up to be a relatively slow month when I identified an ending diagonal forming on the Russell 2000. That pattern signaled that a setup was developing, and we began preparing accordingly.

It took over a week for the pattern to fully complete, but when it did, we were able to take a full-size reversal trade using VXX calls. That trade ultimately produced gains of more than 20x at its peak.

To put that into perspective, a full-size 20x trade within the TCA framework can return approximately 100% of account value from a single trade. While those types of trades are not the norm, we do typically see several 6-10x opportunities each year. The majority of the time, however, we are steadily compounding through smaller gains, “singles and doubles”, working toward our annual target of 60–100% return on capital.

The key point is this: to capitalize on those larger opportunities, you must be prepared, both financially and psychologically.

One of the biggest mistakes traders make is overtrading during slow market conditions. By the time a high-quality setup finally appears, they are coming off a string of losses, which impacts both confidence and execution. That often leads to either missing the trade entirely or failing to hold it long enough to realize its full potential.

Since October, we’ve been on a strong run, with Lou’s TCA system up approximately 70%. That performance has come from consistently executing high-quality setups, rather than chasing every move. Our analysis has remained aligned with market behavior, even during periods where we did not have actionable trades.

Right now, we are at a point where the market could resolve in multiple ways. We could see a larger wave C decline, or the market could continue pushing higher. From a high-probability standpoint, we do not yet have enough confirmation to confidently favor one path over the other.

As a result, the correct approach is patience.

We will allow the market to provide a high-quality setup that meets our criteria. Could we miss a move in the meantime? Absolutely. But if that move does not align with our system, then passing on it is part of the discipline required for long-term success.

We always need to keep the bigger picture in mind.

Our goal is not to catch every move. Our goal is to consistently execute the highest-quality opportunities.

Market conditions can change quickly, and new setups can develop just as fast. By staying patient and disciplined, we ensure that we are in a position to act when it matters most.

In other words, for us, LESS IS OFTEN MORE!