Trade to avoid gambler logic

Take out a coin, toss it five times in a row, and it comes up heads five times.

Toss it again, which side do you think is more likely to come up this time?

There are only two answers:

First, the heads continue to go up, the reason is that the previous five times were all heads up, and a pattern has been formed, and this trend may continue;

Second, tails will come up, on the grounds that six heads in a row are nearly impossible.

So which answer is correct?

Neither is correct. Every time a coin is tossed, the odds of heads and tails are the same, independent of any previous outcome. As long as each coin toss is an independent event, there is still a 50% chance that the next flip will be heads, no matter how many consecutive heads have occurred before.

The above two answers are examples of gambler logic, the misperception of random sequences.

Gambler's logic often comes up in trading. For example, after experiencing continuous profits, traders may have two thoughts in their minds. First, they have made continuous profits and will definitely make profits in the next transaction. At this time, traders may tend to increase their positions. The second kind of psychology happens to be the opposite. It thinks that no one can always make a profit because it has been profitable continuously, so it may give up an excellent trading opportunity in front of it.

On the other hand, if after experiencing continuous losses, traders are most likely to develop gambler logic - I have lost many times in a row, it is impossible to always lose, this time I will definitely win. So he bets heavily and loses, which often leads to fatal results.

When trading, you must avoid the logic of the gambler. Each transaction should be considered an independent event. Past profits or losses should not be the basis for this transaction. Every transaction should be carried out under the condition that the transaction conditions and rules are fully satisfied, and risk management should be done well.