Trading vs. The Gambler’s Fallacy

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Trading vs. The Gambler’s Fallacy

Category : Tips

Analyzing the quote “The four most dangerous words in investing are: ‘this time it’s different.'” – Sir John Templeton

Technically speaking these are the five most dangerous words in investing. And it is a great quote.
The quote refers to the gambler’s fallacy. It is the mistaken belief that, if something happens more frequently than normal during some period like price action analyzethisfx.com, it will happen less frequently in the future, or that, if something happens less frequently than normal during some period, it will happen more frequently in the future (presumably as a means of balancing nature). This belief, though appealing to the human mind, is false.
This quote actually applies to several different trading scenarios. These scenarios all involve emotional responses to profit or loss. You think you deserve justice for losing too many times? You feel that today is your lucky day? Guess again.
A good trader learns to always think in terms of risk and probabilities. He knows where and when he has a trading advantage and only trades when his conditions are met. It’s always the same. This time and all the times after that.