The gambler’s fallacy is the mistaken notion that the odds for something with a fixed probability increase or decrease depending upon recent occurrences. The gambler’s fallacy involves beliefs about sequences of independent events.
By definition, if two events are independent, the occurrence of one event does not affect the occurrence of the second. For example, if a fair coin is flipped twice, the occurrence of a head on the first flip does not affect the outcome of the second flip. What if a coin is flipped five times and comes up heads each time. Is a tail “due” and therefore more likely than not to occur on the next flip?
Since the events are independent, the answer is “no.”
The gambler’s fallacy believing the answer is “yes.”
So How to Avoid Gambler’s Falacy?
The best thing to do top avoid gambler’s fallacy is to simply stop gambling or in the investment world stop day trading. According to an independent study by the North American Securities Administrators Association and publicized by the Federal Trade Commission, more than 70 percent of day traders lost everything they invested.
Build a portfolio that relies on quality investments, diversification and a long-term investing horizon. Choose investments that, as a group, will ride through the market’s inevitable changes.
Source: http://www.behaviouralfinance.info/2008/08/are-you-being-a-gambler-in-the-name-of-investing-understanding-gamblers-fallacy/#more-13