Gambler's fallacy: do you fall for it?
"I've lost five in a row, so the next one must win" — the gambler's fallacy treats independent events as balancing. Markets don't balance; they just continue.
Where do you see it?
- how the fallacy shows up in your thinking
- the streak that tempted you into it
- the statistical truth that cures it
The drawdown guide explains streak statistics properly.
Background: Drawdown and recovery: why a 50% loss needs a 100% gain
Losses and gains aren't symmetrical. See how much you need to recover from a drawdown, what losing streaks do at different risk levels and how to set limits.
How much do you need to gain to recover from a 50% loss?
100%. The gain needed is the loss divided by one minus the loss, so larger drawdowns need disproportionately larger gains.
What is maximum drawdown?
The largest fall in account value from a peak to a later low, before a new peak is reached, usually expressed as a percentage.
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