Gambler's Fallacy


Although it is a little difficult word, “fallacy” is a mistake in thoughts and knowledge.
Gamblers sometimes make irrational decisions, such as "Prices have been declining so far, so they should rise this time."

For example, in the case of a coin toss, even if the back side appears 10 times in a row, the probability that the front side will appear the 11th time is “1/2”.
But when you fall into the gambler’s fallacy, you assume that your trends will affect your next outcome. It is believed that these irrational behaviors affect the market.

Also known as Monte Carlo Fallacy.

Perhaps the most famous example of the gambler’s fallacy occurred in a game of roulette at Monte Carlo Casino on August 18, 1913, when the ball fell in black 26 times in a row. This was an extremely uncommon occurrence: the probability of a sequence of either red or black occurring 26 times in a row is around 1 in 66.6 million, assuming the mechanism is unbiased. Gamblers lost millions of francs betting against black, reasoning incorrectly that the streak was causing an imbalance in the randomness of the wheel, and that it had to be followed by a long streak of red.

Same thing happens in trading - you will see guys say ‘I’m shorting because price is too high’ and so on.

1 Like

:wink:I depends how much petrol do u have behind