The gambler's fallacy in streaks
Posted: Wed Oct 28, 2026 5:12 am
Five losses in a row. Surely a win is due? That feeling is the gambler's fallacy: the belief that independent events balance out in the short run.
If trades are truly independent, the next outcome has the same probability as the last, regardless of the streak. A fair coin that landed heads five times still has a 50% chance of heads on the sixth flip. The fallacy leads traders to increase size after losses, expecting a bounce, or to reduce size after wins, expecting a reversal.
The wrinkle is that trades may not be independent. If the losses came because the market regime changed, the next trade faces the same unfavourable regime, and the odds of another loss are higher than average. That's the opposite error: assuming the streak means nothing.
The right response to a streak is neither "due for a win" nor "the system is broken". It's checking whether anything changed in conditions, costs or execution, and otherwise carrying on with unchanged size.
A neat demonstration: flip a coin 200 times in a spreadsheet and look at the longest run. Streaks of seven or eight are normal. Showing that to anyone who believes a loss is "due" is quietly persuasive. It takes a minute to build, and the picture stays with people.
The better question after a streak is always about conditions, not about luck owed.
Has a streak ever triggered a size change, and was the reasoning closer to "due" or "broken"?
If trades are truly independent, the next outcome has the same probability as the last, regardless of the streak. A fair coin that landed heads five times still has a 50% chance of heads on the sixth flip. The fallacy leads traders to increase size after losses, expecting a bounce, or to reduce size after wins, expecting a reversal.
The wrinkle is that trades may not be independent. If the losses came because the market regime changed, the next trade faces the same unfavourable regime, and the odds of another loss are higher than average. That's the opposite error: assuming the streak means nothing.
The right response to a streak is neither "due for a win" nor "the system is broken". It's checking whether anything changed in conditions, costs or execution, and otherwise carrying on with unchanged size.
A neat demonstration: flip a coin 200 times in a spreadsheet and look at the longest run. Streaks of seven or eight are normal. Showing that to anyone who believes a loss is "due" is quietly persuasive. It takes a minute to build, and the picture stays with people.
The better question after a streak is always about conditions, not about luck owed.
Has a streak ever triggered a size change, and was the reasoning closer to "due" or "broken"?