You just won 3 trades in a row. Your confidence is up 100%. This is when traders usually blow accounts.
Win 1: Small profit, confidence +20%
Win 2: Larger profit, confidence +60%. You start thinking: "I am on a roll. Let me take more trades."
Win 3: Another profit, confidence +100%. Your brain is flooded with dopamine. You are convinced you can predict the market. You start taking weaker setups. You increase position size on shaky trades.
Loss 1 (inevitable variance): But now you are 2x normal position size. -2% instead of -1%.
Loss 2: Frustrated, you think: "I got overconfident. Let me get back to business." -1.5%.
Loss 3: Angry now. -2.5%
Total damage: 3 wins → 0.5% profit → 3 losses → -6% loss. You gave back the profits PLUS 5.5%.
The research is clear: Traders who increase position size after winners have 30% lower long-term returns than traders who keep position size constant or reduce it.
After 3 consecutive wins, reduce your position size by 50% for the next 5 trades.
Why 50%? Because you just made money. Your job now is PROTECT it, not grow it.
Psychology benefit: Small positions make losses feel less painful. You stay calm. Calm decision-making reduces drawdown.
Return to normal position size only after losses bring you back to earth OR after completing 5 small trades with 60%+ win rate.
Example: Win 100 pips, win 120 pips, win 110 pips = +330 pips, confidence high.
Next 5 trades: Use 50% normal position size. Even if you lose all 5 (unlikely), you lose 165 pips = net +165 pips for the session.
This simple rule has saved thousands of traders from overconfidence blowups.
Overconfidence is when a few winning trades inflate your ego and make you believe you can predict the market. You start taking weaker setups, increasing position size, and taking more trades. It usually precedes large losses.
After 3 wins, your brain releases dopamine and you feel invincible. You increase position size to 2-3x normal. Then variance hits (inevitable), and 2-3 losses in a row wipe out your profits plus 5-10% of your account. Overconfidence amplifies risk.
After 3 consecutive wins, reduce your position size to 50% of normal for the next 5 trades. Even if you lose all 5 at half size, you net +165 pips if you won +330 in the 3 winners. This protects you from the variance that always follows hot streaks.
Trade 50% position size for 5 trades OR until you get a loss. Once you lose, psychology resets and you are back to normal. Do NOT immediately scale back up to normal size—wait for at least one loss first to humble you.
No. It is mild by design. You are still making money at 50% size if your edge is real. The goal is not to maximize profits in hot streaks (that is ego talking), but to preserve capital and PREVENT overconfidence blowups. Survival > growth.