Anchoring Bias
Fixating on an arbitrary reference price — like your entry or an old high — and letting it distort your current trading decisions.
Anchoring bias happens when a single number gets lodged in your brain and becomes an invisible reference point for all subsequent judgements. Common anchors: the price you bought at, a round number, a 52-week high, or yesterday's close.
In practice: you bought at $100, price drops to $80, and you refuse to cut the loss because "$100 is fair value" — even though you have no fundamental basis for that. The $100 is just where you happened to buy. It means nothing to the market.
The antidote is to evaluate every position as if you entered it right now at the current price. Would you buy this asset at $80 with this thesis? If no — exit. Your cost basis is irrelevant to what happens next.
Example
A trader buys a stock at $200, an old resistance level. The stock falls to $160 and keeps forming lower highs. They refuse to sell because "it was worth $200 before, it'll get back there." The anchor is preventing rational risk management.
Related Terms
Bag Holder
Someone stuck holding a position that has collapsed in value, usually because they didn't cut the loss when the thesis broke.
BeginnerCognitive Bias
A systematic error in thinking that distorts perception, judgement, and decision-making — markets are full of them.
IntermediateConfirmation Bias
The tendency to seek out information that supports a trade idea you already hold and dismiss evidence that contradicts it.
IntermediateLoss Aversion
The psychological reality that losses hurt roughly twice as much as equivalent gains feel good — distorting risk decisions across the board.
IntermediateSunk Cost Fallacy
Holding a losing trade because of how much you've already lost in it — as if the market cares what you paid.
Beginner