Are you victim to the Gambler's Fallacy in Trading? (Trading Psychology Education)

The Gambler's Fallacy is one of the most important behavioral biases in Trading Psychology to watch-out for, no matter whether you are trading Crypto, Forex, Futures, Commodities, or any other market. Your risk per trade should be covered in a sound Risk Management system, however traders still tend to increase their risk level after a couple of loss trades, oftentimes resulting in even bigger losses. How can the Gambler's Fallacy explain this trading behavior and what can you do as a trader to counteract and improve your trading? Learn all about it and start your Trading Education with us through this video from our Trading Academy series.

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00:00 Introduction & the role of Trading Biases
02:12 What is the Gambler's Fallacy?
03:02 Gambler's Fallcy in Trading
04:16 How to adjust your behavior?
06:06 Closing remarks

The human mind is something incredibly powerful, but at the same time prone to a wide range of biases. We can be grateful for this extremely powerful machine up there in our head, cherish it, and train it, however we need to be aware of the tricks our mind is playing with us. This holds true for many areas of life, and is especially visible in Trading! Common biases can explain a lot of destructive trading behavior, our mind is simply not wired to be a great Trader. Knowing and accepting that you are prone to those biases (as we all are), is the first step to overcome them and use them to our favor in trading.
If you accept that you may have those biases and are eager to work on them; Congratulations, you just successfully overcame the first: The “blind spot bias”, which describes the common believe that we are less prone to behavioral biases than the people around us. We will have a dedicated video on the blind-spot bias in a few days.
At hoc-trade, we cover many behavioral trading biases through the analytics our AI covers, but today I would like to discuss one very very dangerous one in more detail: The Gambler’s Fallacy, or also called Monte Carlo Fallacy. It may be the behavioral bias that created more margin calls than any other bias.

So, what is the Gambler’s Fallacy? The Gambler’s fallacy describes the tendency of humans to think that a random event is more or less likely to happen based on a previous outcome. Sounds a bit theoretical, right? Let me give you an example. Imagine you are sitting at a Roulette table, playing black or red. Now there is 10 times red in a row and a lot of people are starting to bet big amounts on black, because “well this must happen now, what is the likelihood of 11 times red in a row, right?”
Well, the 11th round doesn’t care or know whether there was 10 times red beforehand, the new round has exactly the same probabilities as any other round of Roulette.

#tradingpsychology #daytrading #tradingeducation #trading

As always when dealing with cryptocurrencies and trading, please make sure to do your own research and take the required time to process and execute. The information in this video may be outdated.

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