The Winner Effect in the Markets: When Biology Hijacks Your Edge

You have been there. A strong run of winners, the market seems to bend in your favour, every trade feels right. That surge of confidence, that sense of being untouchable, it is not only your strategy at work. It is your biology. That, my friend, is the Winner Effect.

Where It Came From

The Winner Effect was first observed in biology. Researchers found that when animals won one contest, they were more likely to win the next. It was not simply that the stronger animal dominated. Winning itself triggered physiological changes that tilted the odds even further in its favour.

The exact origin of the term is not pinned to a single paper or scientist, but the phenomenon is well established in behavioural biology. In the world of trading it was brought to prominence by John Coates, a former Wall Street trader turned neuroscientist, in his book The Hour Between Dog and Wolf. Coates showed how the same physiological processes found in animals can shape human performance on trading desks.

Another important contribution came from Ian Robertson in his book The Winner Effect: The Neuroscience of Success and Failure, which extended the concept to human achievement more broadly. Between them, these works cemented the Winner Effect as a framework for understanding success, failure, and risk in markets.

The Biology Behind the Edge

Winning is not only psychological, it is chemical. The main actors are testosterone and cortisol.

• Testosterone surges with victory. It sharpens reaction times, raises confidence, and increases risk tolerance. For a trader this can feel like heightened clarity and conviction. In moderation it can enhance performance. Yet Coates warns that excessive testosterone creates overconfidence, recklessness, and fuels bubbles.

  
  

• Cortisol rises in periods of stress and loss. It narrows focus, crushes creativity, and makes you risk-averse. Prolonged exposure can leave you paralysed, missing the trades that matter.

Coates argues that during extended winning runs, testosterone builds to levels that blur judgement. What begins as an edge turns into overreach. The Winner Effect does not just affect hormones. Success can also alter neural circuits, priming you to seek risk, dismiss fear, and chase upside long after your rational mind has lost control.

The Trader’s Trap

You are not immune. Trade long enough and you will feel it. The signs are easy to recognise:

• Your position size grows without you consciously deciding.

• You see trades where none exist, driven by adrenaline and self-belief.

• You convince yourself you have found edge, when in reality you are surfing a biological wave.

• You stretch your stops, you stretch your risk, you chase after the market. And then one shock move wipes it all away.

That is the danger. Treating a chemical surge as a lasting edge instead of a temporary bias.

How to Fight Back

The first step is to accept that biology is part of the game. It is older, faster, and more powerful than your logic. You cannot switch it off, but you can build guardrails.

• Hard limits on risk per trade. Let rules, not hormones, decide exposure.

• Behavioural journalling: track mood, confidence, and emotions alongside results. Patterns will reveal when biology is distorting your process.

• Reset periods: take enforced time off, or reduce size after strings of wins. Allow the chemistry to settle.

• Accountability: involve someone who can spot when you are drifting, and challenge your overconfidence.

The best traders are not immune. They rely on systems that cut them back when their biology surges ahead. Their edge is consistency, not streaks.

Final Word

The Winner Effect is not just an academic theory. It has almost certainly appeared in your P&L and in your trading behaviour already. Many traders ignore it, convinced they are rational machines. They are not.

Markets test more than your strategy. They test your body. The rush of a hot streak is as much chemistry as it is skill. You can either be carried away by it, or you can build a structure that keeps you in control. The real craft of trading is not only outsmarting the market. It is outsmarting yourself.