Gambler's Fallacy in the Stock Market When investors apply this gambler's fallacy to the stock market, they think they have discovered a trend, which is in fact an illusion. Of course, we are not saying that stock market prices are completely unpredictable. When all aspects are taken into account, prices can indeed be predicted to a certain extent. However, investors always mistakenly assume that stock prices are more likely to maintain their upward momentum after a period of rise than after a fall, and similarly, stock prices are more likely to fall further after a fall than after a rise. Investors emotionally want to stick to this view, and often forget the fact that the data model is only a representation of the real world. However, this is not a simple case of self-deception. In the view of Kahneman and Tversky, this "gambler's fallacy" illusion has always existed, even when people have recognized the characteristics of this illusion. And this phenomenon is very common, not only in the field of investment, but also in other types of human activities. For example, in basketball, people are accustomed to calling players who have made consecutive successful shots "hot hands". If a basketball player makes consecutive shots, fans generally believe that the player has a "good touch" and will score again in the next shot. This makes many experienced players, coaches and fans believe that a player is more likely to score the next shot after making a shot than after missing a shot. There is no connection between whether the first shot and the second shot are successful. Even though Kahneman and Tversky have proven through statistics that the so-called "hot hand" is just an illusion, and the probability of a player making the next shot after making a shot is the same as after missing a shot, people still insist on this view. Who are the die-hard supporters of this wrong theory? Those experienced players, coaches and fans. In the stock market, there are many such absurd experts. In the securities investment market, behavioral finance also has a psychological analysis of the "gambler's fallacy". Simply put, people seem to always be willing to believe that after a series of random events, the chance of the same event happening again will be greatly reduced. Unfortunately, the "black swan" of the investment market always likes to come unexpectedly.Without strict reasoning based on specific economic cycles and economic operation, investors simply assume that if the market rises too much or rises for a long time, it will definitely fall, and if it falls too much or falls for a long time, it will definitely rise. Based on this, investors boldly sell and buy to make profits. This kind of investment is essentially speculation, and the risk is no less than gambling. It has to be said that the gambler's fallacy is indeed a major psychological barrier to investment. Although investors often realize that this mentality is actually irrational, they often fall into such a fallacy when they are overwhelmed by the market situation. After the stock price rises continuously or after multiple investments have made profits, they will become cautious and tend to sell the stocks they hold immediately to lock in profits; and when the stock price falls continuously or the investment loses money many times, they become risk-averse and are extremely reluctant to sell the loss-making stocks they hold and wait for the rise. To overcome the psychological barrier of the "gambler's fallacy", investors need to learn to control their emotions and not try to predict the future market based on simple short-term trends.

What is the probability of a coin landing on the tails side? We have all played the game of tossing a coin: a coin is thrown, and it lands on either the heads or the tails side. After you toss it repeatedly, any combination of heads and tails is possible. So, what is the probability of a coin landing on the tails side? People who are affected by the gambler's fallacy may analyze the problem in this way. In the coin game, if we toss a coin three times in a row, and each time it lands on the tails side, then the probability of the next tails side appearing is 1/16, and so on. If you continue to toss the tails side, the probability of the tails side appearing will become smaller. Is this really the case? In fact, repeatedly tossing a coin with a uniform texture has a great deal of uncertainty in the result, and this uncertainty will not be transferred by human will: the coin lands on either the heads or the tails side, so the probability of the tails side appearing is still 1/2. In a word, no matter how many times you toss it, the probability of the tails side and the heads side are equally high, each accounting for half. At the same time, we should also note that there is no correlation between the heads and tails of the coin last time and the next time it appears, that is, the last time has no effect on the next time. So why do we usually think that if the reverse has appeared several times in a row, the probability of the next positive will be greater? Or is it the demon of the gambler's fallacy that is at work. Behavioral economist Shevlin once pointed out that in the game of tossing a coin, when the positive or negative appears continuously, people basically predict that the result will be the opposite next time. This also happens in the stock market: investors will expect the stock price to reverse after it has risen or fallen continuously for a period of time. This shows that when the sequence of continuous rises or falls in stock prices exceeds a certain point, investors will have an expectation of reversal. Therefore, investors tend to sell when the stock price rises continuously beyond a certain critical point. But this view is not necessarily correct. The world always runs according to the rules, whether you understand it or not. Of course, if you don't understand it, the biggest possibility is that you will encounter a failure that you don't have to encounter, or be used by people who understand it.