Hot Hand


DEFINITION of 'Hot Hand'

The notion that because one has had a string of successes, he or she is more likely to have continued success. For example, if one flipped a (fair) coin and guessed correctly that it would land on heads three times in a row, it might be said that they have a "hot hand." Under such circumstances, a person believes that their odds of guessing which side the coin will land on next are greater than the 50% they actually are.


The belief in a hot hand is one shared by many gamblers and investors alike, and is believed by psychologists to stem from the same source, the representative heuristic. For example, there is data to suggest that the decision of an investor to buy or sell a mutual fund depends largely on the track record of the fund manager, even though there is evidence that this factor is highly overrated. Hence, it would appear that such investors are making decisions based on whether or not they feel the fund managers are "hot" or not.

  1. Variance

    The spread between numbers in a data set, measuring Variance ...
  2. Muppet Bait

    Naive investors who are lured into buying hot stocks or securities ...
  3. Smart Money

    Cash invested or wagered by those considered to be experienced, ...
  4. Cooler

    A slang term used to describe someone considered to have bad ...
  5. Capital Loss

    The loss incurred when a capital asset (investment or real estate) ...
  6. Insider

    A director or senior officer of a company, as well as any person ...
Related Articles
  1. Options & Futures

    Terrorism's Effects on Wall Street

    Terrorist activity tends to have a negative impact on the markets, but just how much? Find out how to take cover.
  2. Investing

    4 Gambling Stocks that Outperformed Since 2010

    A look at four stocks in the casino and gambling industry that outperformed the market for the last five years.
  3. Savings

    3 Steps for Retirement Saving and Investing Habits

    We take a look at the choices we make today that our future selves would prefer not to be making, often faced by investors when saving for the future.
  4. Investing News

    Defensive Investing: Learn from a Hedge Fund Pro

    Looking for ideas on companies, sectors or investments to short? Consider the opinion of this hedge fund luminary.
  5. Investing

    How to Play the Gaming and Gambling Sectors

    An upturn in macro revenue numbers should signal a significant trading and investment opportunity in the gaming and gambling sectors.
  6. Stock Analysis

    5 Risky Stocks to Own Right Now

    These five well-known stocks are risky propositions. Here's why.
  7. Entrepreneurship

    Behind the Hair: How To Build an Empire, Trump-Style

    Who is the man behind the hair? The crucial steps that Donald J. Trump took to build his real estate and celebrity empire.
  8. Active Trading Fundamentals

    Why Rational Ignorance About Your Investments Might Really Be OK

    It's impossible to know everything about the markets. Find out how ignorance affects your investments.
  9. Trading Strategies

    The Traits All Baller Traders Have In Common

    When it comes to traders, these are the traits that separate the wheat from the chaff.
  10. Active Trading

    Bad Luck With Trades? 5 Things You Might Be Doing Wrong

    If you're in a trading rut, ask yourself these five questions to help turn the corner.
  1. How do mutual funds split?

    Mutual funds split in the same way that individual stocks split, but less often. Like a stock split, mutual fund splits do ... Read Full Answer >>
  2. What taxes will I pay if I win a lot of money while gambling in Las Vegas?

    Every year, thousands of people travel to gambling hot spots, such as the Nevada cities of Las Vegas and Reno, with the hope ... Read Full Answer >>
  3. What is the difference between a banker's acceptance and a post-dated check?

    Some common financial instruments that speculators use are stocks and financial derivatives. Speculation involves trading ... Read Full Answer >>
  4. How does days to cover a short position relate to a short squeeze?

    Days to cover a short position reveals the intensity and duration of a potential short squeeze. A short squeeze occurs when ... Read Full Answer >>
  5. Is it better practice to use a stop order or a limit order?

    Both stop orders and limit orders have their advantages and disadvantages; traders need to decide between the two based on ... Read Full Answer >>
  6. What is the difference between a buy limit and a sell stop order?

    A buy limit order is a specific type of buy order used to enter a market, while a sell-stop order is a sell order that can ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Take A Bath

    A slang term referring to the situation of an investor who has experienced a large loss from an investment or speculative ...
  2. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, 1869, was deemed Black Friday. The crash was sparked by gold ...
  3. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  4. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
  5. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  6. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
Trading Center