Gamblers' Logic
I toss a coin and heads turns up five times in a row.
Which side is more likely to
turn up the next time?
- Heads? Five heads in a row is a pattern - the trend is likely to continue.
- Tails? Six heads in a row is unusual so tails is more likely.
The above answers are examples of gambler's logic — the perception of patterns in random data.
So
which is the correct answer?
Neither - every coin toss has an even chance of turning up heads or
tails. It never varies.
Author: Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters.
Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.
Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.
He founded PVT Capital (AFSL No. 546090) in May 2023, which offers investment strategy and advice to wholesale clients.