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The mistake of treating independent events as a sequence
Published by The Retail Trader · JUL 27, 2026 · Trading Psychology
The stock has been falling for five days, so it should go up now. Or five trades were lost, so the next one should win. These are the same mistake, and both are costly.
If events are roughly independent, past results give no claim on the next one. The market has no relationship with your last five trades.
And where events are not independent, the relationship is often the opposite — a falling stock does not stop because it has already fallen a lot.
This thinking appears in many forms:
• Increasing size after a losing streak, because "now we are bound to win".
• Averaging down in a falling stock only because it has fallen a lot.
• Placing extra trust in a strategy after a bad phase.
• After a winning streak, assuming that a mistake is now due.
Looking at every trade as a fresh trade is the cure for this whole mistake. If your size is changing because of the outcome of the last trade, your system is now running on a sequence, not on probability.
This article is educational only — it is not a buy or sell recommendation, it makes no claim of guaranteed returns, and it is not advice. Rules, rates and mechanics are changed from time to time by the exchanges, SEBI and RBI, so verify every number yourself with your broker or an official source.