Key Takeaways
- Winning releases dopamine — a drug that rewrites your risk perception
- After 5+ consecutive wins, traders increase position size by 87% on average
- The brain literally cannot distinguish between skill and luck during a hot streak
- Most account blowups happen not after losses, but after wins
- The cure: Mechanical position sizing that ignores your recent results
A Story in Two Charts
Meet Vikram. 28 years old. Software engineer. Started trading with ₹5 lakhs in January.
By March, he had turned it into ₹14 lakhs. Seven winning trades in a row. His win rate: 100%.
His friends called him a genius. His family asked for stock tips. He started a Telegram group. He was on top of the world.
Then came trade #8.
Vikram saw a "guaranteed" setup. A sure thing. He knew the market now. He understood it. So he did what every overconfident trader does:
He bet 60% of his account on a single trade.
The trade went against him. He averaged down. Then averaged down again. "It has to reverse," he told himself. "I'm never wrong."
It took seven trades over three months to build ₹14 lakhs. It took one trade over three days to destroy 84% of it.
This isn't a cautionary tale. This is the most common story in trading.
Your Brain on Winning: A Drug Trip
When you win a trade, your brain releases dopamine. This isn't metaphor — this is chemistry.
Dopamine is the same neurotransmitter released by cocaine, gambling wins, and falling in love. It's the brain's "reward" signal. And it does something dangerous:
It rewires your perception of risk.
Small Dopamine Hit
"Nice! That worked." You feel good. Risk perception: normal.
Pattern Recognition
"I'm getting good at this." Confidence builds. Risk tolerance increases.
Dopamine Flood
"I have figured out the market." Ego takes over. Risk feels distant.
Invincibility Complex
"I cannot lose." Risk? What risk? The drug is in full effect.
"The same neural pathways activated by cocaine are activated by a winning streak in the market. The brain literally cannot tell the difference between trading skill and drug-induced euphoria."
— Dr. Andrew Lo, MIT Professor of Finance
The Skill Illusion
Here's the cruelest trick the market plays on traders: Your brain cannot distinguish between skill and luck.
Consider this experiment:
The Coin Flip Experiment
Researchers gave subjects a rigged coin that landed heads 60% of the time. After 10 successful "heads" predictions, subjects reported feeling skilled at predicting coins — even though they intellectually knew it was random.
In trading, this is even worse. Because unlike a coin flip, trading does involve skill. So when you win, you have no way of knowing how much was skill and how much was luck.
A study of 3,000 day traders revealed something disturbing:
60-70%
Of short-term trading results are attributable to luck, not skill
95%
Of traders believe their wins are due to skill, not luck
200+ Trades
Minimum needed to statistically separate skill from luck
You've won 7 trades in a row. Your sample size is 7. You think you're a genius. But statistically? You have no idea if you're skilled or just lucky.
"Randomness is not random. It clusters. Winning streaks and losing streaks occur far more often than our intuition predicts. And we mistake clusters for patterns."
— Nassim Nicholas Taleb, "Fooled by Randomness"
The Position Size Creep
This is where accounts die.
Research tracking 15,000 retail traders found a clear pattern:
The Death Curve
After each consecutive win, position size increases. By Win 6-7, traders are betting 3-5x their normal size. The blowup trade (often Win 8) wipes out all previous gains plus original capital.
The psychology is insidious:
- After Win 1-2: "I'll keep doing what works."
- After Win 3-4: "I should bet bigger — I'm clearly good at this."
- After Win 5-6: "Why am I wasting time with small positions? I should maximize my edge."
- After Win 7: "This is a PERFECT setup. I'll go big."
- The Blowup: "Wait... this wasn't supposed to happen..."
Every win makes the next trade more dangerous.
Why Losses Are Actually Safer
Counterintuitive truth: Losing traders are often safer than winning traders.
When you lose:
You Become Cautious
Position sizes shrink. You question your decisions. You seek validation.
You Respect Risk
Stop losses are tighter. You're aware of what can go wrong.
You Seek Knowledge
You read, learn, study. You know you don't know everything.
You Survive
Small losses don't kill accounts. They teach.
When you win repeatedly:
You Become Reckless
Position sizes balloon. You stop questioning. You stop learning.
You Ignore Risk
Stop losses widen or disappear. "It'll come back."
You Stop Learning
"I've figured it out." Learning feels unnecessary.
You Set Up For Destruction
One oversized trade wipes out everything.
"Success is a lousy teacher. It seduces smart people into thinking they can't lose."
— Bill Gates
The Hall of Shame: Legends Who Fell
This isn't a beginner's disease. The best traders in history have been destroyed by winning streaks.
Jesse Livermore
Made $100M (in 1929 dollars) shorting the crash. Lost it all within years through overconfidence and oversized positions. Died broke.
Long-Term Capital Management
Won for 4 years straight. Two Nobel laureates on board. Then bet the fund on a "sure thing." Lost $4.6 billion in weeks.
Victor Niederhoffer
One of the best hedge fund managers of the 90s. "I've never met anyone as good as me." Blew up twice.
The pattern is identical in every case:
- Extended period of winning
- Growing belief in personal invincibility
- Increasing position sizes and leverage
- One "sure thing" trade that goes wrong
- Refusal to cut losses ("I'm too good to be wrong")
- Complete destruction
The Universal Truth
If winning streaks can destroy Nobel laureates managing billions, they can destroy you. The market doesn't care about your track record.
The Cure: Mechanical Humility
You cannot will yourself to be humble. After 7 wins, your brain is flooded with dopamine. "Being careful" isn't possible.
The only solution is mechanical rules that override your emotions.
Fixed Position Sizing
Never risk more than 2% per trade. Period. Whether you've won 10 in a row or lost 10 in a row. The number doesn't change.
The 10-Trade Rule
After 5+ consecutive wins, take a mandatory 2-day trading break. Let the dopamine clear. Let rationality return.
Shrink After Wins
Counterintuitive: REDUCE position size by 25% after 3+ consecutive wins. The bigger the streak, the closer you are to reversion.
Profit Lock
After a winning streak, withdraw 50% of profits. Money in your bank can't be lost to overconfidence.
The Pre-Trade Checklist
"Am I sizing this trade because of analysis or because I've been winning?" If you can't honestly answer, skip the trade.
Accountability Partner
Tell someone your position sizes BEFORE you enter. Another person can see your overconfidence when you can't.
The Trader's Paradox
Here's the terrible irony of trading:
The times when you feel BEST about your trading are the times when you're in the most DANGER.
The times when you feel WORST — uncertain, humble, cautious — are when you're actually SAFEST.
The market is a humility machine. It will humble you eventually. The only question is: Will it humble you with a small loss during a normal trade? Or will it humble you with a devastating blowup after you thought you were invincible?
"The market can remain irrational longer than you can remain solvent. And you, after a winning streak, can remain irrational longer than you think."
— Adapted from John Maynard Keynes
Remember Vikram? He's back now. Trading with ₹1 lakh. Smaller positions. Fixed 2% risk. He learned the hard way.
You don't have to.
Win humbly. Size mechanically. Survive permanently.