The hot hand fallacy in trading is a cognitive bias that occurs when traders believe that a winning streak will continue, even though the probability of success remains unchanged. In other words, traders may believe that because they have experienced a series of successful trades, they are more likely to continue to make successful trades in the future.
This bias can lead traders to take excessive risks or make irrational decisions, such as increasing the size of their trades or holding onto a position for longer than they should. This can be particularly dangerous in trading, where decisions based on emotions rather than logic can lead to significant losses.
It is important to recognize that past performance is not always indicative of future results. While a trader may have had a successful run, numerous factors can affect the market and individual stocks, and these factors may change rapidly and unpredictably. Therefore, traders must remain objective and not allow the hot hand fallacy to influence their decisions.
Wikipedia has a more extensive explanation and shows many more situations where this fallacy is in play. https://en.wikipedia.org/wiki/Hot_hand