Sunk Cost Fallacy
Holding a losing trade because of how much you've already lost in it — as if the market cares what you paid.
The sunk cost fallacy is letting past, irrecoverable losses influence current decisions. In trading: "I can't sell now, I've already lost 30% — I'll wait for it to come back." The 30% loss is gone. It cannot be un-lost by holding. The only question is: given current conditions and current price, is this position worth holding?
Sunk cost thinking keeps traders in zombie positions for months, tying up capital that could be deployed in live setups, and inflating paper losses into realised catastrophes. It is loss aversion's close cousin.
The clean mental reset: "If I had cash right now and no position, would I buy this asset at this price with this thesis?" If the answer is no, exit. Your entry price is irrelevant to that question.
Example
A trader is down $3,000 on a biotech position after a failed trial. The thesis is dead. But they hold on because "I've put so much into this already." The sunk cost is keeping them in a position they would never initiate today.
Related Terms
Anchoring Bias
Fixating on an arbitrary reference price — like your entry or an old high — and letting it distort your current trading decisions.
IntermediateBag Holder
Someone stuck holding a position that has collapsed in value, usually because they didn't cut the loss when the thesis broke.
BeginnerConfirmation Bias
The tendency to seek out information that supports a trade idea you already hold and dismiss evidence that contradicts it.
IntermediateGambler's Fallacy
The false belief that a series of losses makes a win 'due' — as if random markets keep track of what they owe you.
IntermediateLoss Aversion
The psychological reality that losses hurt roughly twice as much as equivalent gains feel good — distorting risk decisions across the board.
IntermediateTrading Plan
A written document that defines your entry criteria, exit rules, position sizing, and daily loss limits before the market opens.
Beginner