What Is the Gambler's Fallacy

Five losses, and what the sixth is owed

The gambler's fallacy is a run being read as a debt. Five trades at 0.40 lot, where 25 pips is 100 dollars, each stopped for 100: minus 500 in a row, with these as example figures. The sixth trade is felt as due, because five losses in a row seems like more than a fair share and a win seems owed. As it is, the sixth trade is the same trade as the first. The five losses are in the account, and they are real; they are not in the sixth trade, which has no way of knowing they happened. Nothing is owed, because there is nobody to owe it, and the market does not keep accounts with anyone.

A die with no memory

Picture a die. The last five rolls came up one every time, and the sixth roll is still in the hand. A one on the sixth is one chance in six, and so is a six: the die has no memory, it did not see the five ones, and it does not roll to even them out. A run of five is something dice do from time to time, and the run being long is not a promise about the sixth. The fallacy is the feeling that it is; that the die owes a high number now, and that the sixth roll is a different roll because of the five before it. It is the same roll.

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