The gambler's fallacy is the belief that a certain trend will reverse or continue into the future.
A lot of traders have the misconception that a trend will dictate future price movements.
For example: This stock has been up the past week. I think we’ll see continuation on Tuesday.
Now let’s say your past three short 16 delta strangles in SPY are losers averaging -$100 per trade.
Does this mean that you should place a larger position next time expecting that your P/L will revert back to the long term average of $67?
Absolutely not. Doing this simply exposes you to more risk, while your probability of profit on this hypothetical large trade remains the same at 83%.
Do not abandon the mantra of trade small, trade often.