For Business

Trading Psychology

What Overconfidence After a Winning Streak Looks Like

Overconfidence after a winning streak is the size rising to match a feeling that the streak has earned it, while the rule stays where it was, so that one ordinary loss undoes several wins. This paper shows you five wins at the plan's size and a sixth trade at four times it, in example figures, with four wins undone in one trade; the idea as a straight road followed by a bend, where the speed the straight allowed is the speed the bend punishes; the account drawn trade by trade; a board of snakes and ladders that does not remember the ladder; and the Volume column on your platform, where the streak shows on the sixth row before the Profit column does.

Difficulty
Beginner
Reading time
5 min
Pages
8
Reviewed by
Saman Rahbar

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Five wins, and the sixth trade

Overconfidence after a winning streak is the size rising to match a feeling while the rule stays where it was. Take five wins in a row at the plan's size, 0.40 lot with a 25-pip stop, 100 dollars each in example figures, and the account at 10,500. Then a sixth trade at four times the size, 1.60 lot, because five wins felt like proof, with the same 25-pip stop; it loses, and the loss is 400. The account is at 10,100, four of the five wins undone by one trade. At the plan's size the sixth would have lost 100 and left 10,400. The stop did not change. The size did, to match a feeling.

A straight road, then a bend

Picture a straight road followed by a bend. On the straight the speed creeps up, because nothing on the straight punishes it; the bend punishes it, and the bend was on the map the whole time. A winning streak is the straight, the size is the speed, and the next loss is the bend. Five wins in a row do not change the road: the sixth trade has the same chance the first had, and the rule's size was set for that chance. What the straight changed was the speed, and it is the speed, not the bend, that decides what the bend costs when it comes.

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