Why a winning streak breeds overconfidence

[Shadow Trader]

Five wins in a row. The platform feels easy. Position size inches up, the filters loosen and a few borderline setups look acceptable.

This pattern is well documented in behavioural finance. Success, even when partly random, raises confidence faster than skill grows. Risk-taking rises with confidence, and the next losing run hits harder because the size is bigger.

Professional trading desks sometimes cap size increases after streaks, or even reduce limits following exceptional results, specifically to counter this effect.

For individual traders, a practical countermeasure is a fixed risk percentage that does not change with recent results. One percent stays one percent after five wins and after five losses.

Another is a weekly review that compares recent trades with the plan, looking for drift in position size, trade frequency and setup quality.

A streak is information about the market's friendliness during a stretch, not a verdict on ability.

Has position size ever crept up here after a hot run, and what followed?