It is easy to see why retail traders find indicators appealing because of their ease of use and clear-cut signals. In fact, many new traders think they know all about trading because they have learnt a few basic indicators that generate simplistic buy/sell signals. This kind of thinking is dangerous because it shuts them off from learning real trading skills like price action and behavioral analysis.
What are indicators and how are they derived?
There are only five pieces of information we can get from charts: the open, high, low, close and volume. A skilled trader can interpret this in terms of market behaviour of psychology instead of processing it as a bunch of numbers. Indicators, on the other hand, attempt to use shortcut calculations to give meaning to these numbers. As a result, they can never be faster than reading the actual raw data. Manipulating data may also mask its information quality and granularity, causing you to miss out essential essential details.
Do professionals use them?
The answer is minimally. If you go to any bank/fund or professional trading arcade, and observe the traders who trade there, you will notice that their charts are mostly blank. This is not coincidence, because such a chart setup is optimised for reading price action, with as little distractions as possible. If you don’t believe me, go check it out yourself. As said by the famous Leonardo Da Vinci, “Simplicity is the ultimate sophistication.”
The dangers of using indicators without real trading skills
Many traders, especially beginners, are drawn to indicators, hoping that an indicator will show them when to enter a trade. what they don’t realise it that the vast majority of indicators are based on simple price action. Oscillators tend to make traders look for reversals and divergences, and when the market is trending strongly (best chances to make money), they will be repeatly entering counter-trend and losing money. By the time they come to accept that the market is trending, it will be too late to get a good entry to recoup their losses. Instead, if you were simply looking at a blank chart, it would be obvious when a market is trending, and would not be tempted by indicators to keep looking for reversals.
Common heuristics such as “buy when this line crosses this line” or “sell when this is in the overbought region” are some overly simplistic ways of using indicators. Trading in this manner does not give you any understanding about the market. It does not answer the “why” question, such as why this line crossing that line generates a buy signal. Quite often, one may also get conflicting signals from different indicators, and without an understanding of price action, one has no way of resolving the conflict.
Are indicators really needed for your decision-making?
Some pundits recommend a combination of time frames, indicators, wave counting, and Fibonacci retracements and extensions, but when it comes time to place the trade, they will only do it if there is a good price action setup. Also, when they see a good price action setup, they start looking for indicators that show divergences or different time frames for moving average tests or wave counts or Fibonacci setups to confirm what is in front of them.
In reality, they are price action traders who are trading exclusively off price action but don’t feel comfortable admitting it. They are complicating their trading to the point that they certainly are missing many, many trades because their over-analysis takes too much time, and they are forced to wait for the next setup. The logic just isn’t there for making the simple so complicated.
So… Should I be using indicators at all?
The best solution for the retail investor would be to first master a firm foundation of price action and behavioral analysis, and subsequently, should he choose to use indicators, should remember that as their name suggests, they are not “entry/exit signallers”, but merely “indicators”.
Therefore, it is a matter of how you use indicators, and one should always keep in mind that indicators are there to aid you in reading the price action, and not act as a substitute for it. You can think of indicators as the training wheels of a bicycle – you will want to remove them once you learn how to ride properly.
Trading always involves uncertainty, and trying to find comfort in the certainty of indicators will lead to constant indecision, second-guessing and parameters-tweaking.
If you would like to learn how to get started in trading, also check out: “The Beginner’s Guide to Trading & Technical Analysis”
What Is Anchoring Bias in Trading (and How to Beat It)?
Last updated: 14 June 2026 · By Spencer Li, CFTe
Anchoring bias is the tendency to lean too hard on the first number you see, and then judge everything after it against that number instead of against reality. In trading, the anchor is usually your entry price, a target price you had in mind, or the direction of the early trend. Once it is set, you read every new piece of information through that anchor, and your decisions drift away from what the chart is actually telling you. It shows up in two predictable ways: you refuse to cut a loss until price crawls back to your entry, and you refuse to take a good profit because you anchored to a better one you missed. The fix is not a clever indicator. It is a habit: evaluate the trade on its current merits, as if you had no position, whether you are in, out, up, or down.
Here is where the anchor comes from, the exact ways it costs you money, and how to trade as if you never saw the number.
What is anchoring bias?
Anchoring (the full name is “anchoring and adjustment”) is a mental shortcut, a heuristic (a rule of thumb the brain uses to judge probabilities quickly). You take a starting number, the anchor, and you adjust away from it. The problem is that people under-adjust. They stay too close to the anchor even when it has nothing to do with the right answer.
A rational trader treats new information on its own terms. The entry price is a sunk fact. The market does not know or care what you paid. But a trader under anchoring bias reads the same new information through a warped lens, placing weight on a price level that is, statistically, arbitrary. It feels meaningful only because it is your number.
That is the whole trap. The anchor is psychological, not market-driven. The market is pricing the asset right now. You are pricing your own history.
The three anchors that catch traders
In trading the anchor almost always comes from one of three places.
| Anchor | What it sounds like | How it bites |
|---|---|---|
| Your entry price | “I’ll get out when it comes back to where I bought.” | You hold a losing trade hostage to your cost basis and refuse to cut it. |
| A target / better price you missed | “It was 105 an hour ago, I’m not selling at 102.” | You refuse a perfectly good exit because you anchored to a price that is gone. |
| The initial trend | “It’s been going up for weeks, this dip is nothing.” | You are slow to see a reversal, especially when you are on the wrong side of it. |
Notice that all three are about your reference point, not the market’s. None of them is information about the asset. They are information about you.
How will this affect your trading?
Two failure modes, and you have probably done both.
You won’t cut a loss. You anchored to your entry. So instead of asking “is this trade still valid?”, you ask “is it back to break-even yet?”. The position keeps bleeding while you wait for a number that the market has no reason to revisit. The trend may have reversed against you, and because you are anchored to the old direction, you are slow to admit it and slow to flip. That reluctance to change your view is the anchor doing its work.
You won’t settle for less. Price ran to a level, you hesitated, and now it has pulled back. The exit in front of you is genuinely good. But you anchored to the better price you missed, so you reject the good one and hold out for a number that may never come back. A worse exit, or a loss, often follows.
Both mistakes share one root. You are trading against your own anchor instead of trading the chart.
How to overcome anchoring bias
The cure is a single discipline, applied every time: be flexible and objective. Evaluate the price and the setup on their current merits, not against the number stuck in your head.
A few habits that make that real:
- Run the blank-slate test. Ask: “If I had no position and saw this chart fresh right now, would I buy, sell, or stand aside?” If the honest answer differs from what you are doing, your anchor is steering, not your analysis.
- Decide your exit before you enter, in market terms. Set a stop based on structure (a level where the idea is wrong), not on your entry price. A stop placed by the chart cannot be anchored to your cost.
- Treat your entry as a sunk cost. What you paid is irrelevant to whether the trade is still worth holding. The market never agreed to give it back.
- Write down why you are in the trade. When the reason no longer holds, exit, regardless of where price sits relative to your entry. This pre-commitment is the single best defence against anchoring.
- Separate the decision to exit from the wish to be right. Refusing to take a worse-than-hoped profit is vanity dressed up as discipline. A good exit you take beats a perfect exit you imagine.
The thread running through all of these: act on the price the market is showing you now, not the price you are emotionally attached to.
Where the human edge comes in
A trading system can give you the entry, the stop, and the exit rule. What it cannot do is make you take the stop when your gut is screaming “wait for break-even”. Anchoring is not a flaw in your strategy. It is a flaw in the operator. That is why psychology is one of the Five Edges that stay with the human. The machine has no entry price to fall in love with. You do, and beating that is the work.
FAQ
What is anchoring bias in trading?
Anchoring bias is the tendency to fixate on a reference price (usually your entry, a target you missed, or the early trend direction) and judge new information against that number instead of against current market conditions. It leads traders to hold losers too long and exit winners on the wrong terms.
What is an example of anchoring bias?
A trader buys a stock at 100, it falls to 90, and instead of asking whether the trade is still valid, the trader refuses to sell “until it gets back to 100”. The entry price of 100 is the anchor, and it has no bearing on what the stock is worth now.
Why is anchoring bias dangerous for traders?
Because it overrides your stop-loss discipline. Anchored to your entry, you delay cutting a loss; anchored to a price you missed, you reject a good profit. Both errors push your decisions away from the rational norm and toward your own emotional reference point.
How do you overcome anchoring bias?
Treat your entry price as a sunk cost, set stops and targets from chart structure rather than from what you paid, and run a blank-slate test: would you take this same position if you saw the chart fresh, with no position on? Trade the chart in front of you, not the number in your head.
Is anchoring bias the same as loss aversion?
No, though they often work together. Anchoring is fixating on a reference number; loss aversion is feeling losses more painfully than equivalent gains. Anchoring to your entry price makes loss aversion worse, because break-even becomes the line you irrationally defend.
So, which anchor catches you most often: the entry price, the one that got away, or the old trend? Naming it is half the battle. Let me know in the comments.
For the full set of mental traps that quietly drain trading accounts, read the pillar: The Trader’s Guide to Trading Psychology and Behavioral Finance.
Want a routine that takes the emotion out of it? Grab the free 15-Minute Swing Trading Starter Kit. It’s the exact once-a-day process I use to set entries, stops, and exits in advance, so the anchor never gets a vote.
About the author. Spencer Li is the founder of Synapse Trading and a Certified Financial Technician (CFTe) with 15 years of trading across stocks, forex, crypto, commodities, and bonds. His trade log is public, 404 trades, losses left in. He teaches low-risk swing trading in 15 minutes a day, one system for any market.
Education, not financial advice. Synapse Trading is not licensed by MAS to advise on investment products. Trading carries risk of loss; past performance is not indicative of future results.
Related
Trader’s Guide to Trading Psychology (pillar) · Loss aversion in trading · How to cut your losses · Confirmation bias in trading
Every trader knows that using multiple timeframes can provide different perspectives on the market, and provide key information on the lead-lag relationship.
Small timeframes lead larger ones, and larger ones drive the smaller ones. Understanding the inter-play is crucial.
Since trends exist on different timeframes, it makes sense to analyse at least two timeframes.
For example, if one’s main timeframe is the daily chart, one can consult the weekly chart to see the big picture.
This allows investors to analyze a particular trend against the perspective of the next higher timeframe.
If one is using swing counts, a lower/higher high/low in the weekly and monthly charts can provide perspectives not seen in daily charts.
Long-term trendlines may be clearer, and more obvious/easily visible.
Certain price patterns are more visible on long-term charts (key reversals, triangles on weekly), as well as long -term support and resistance levels.
A trend change signal on the short-term (daily) may only be a retracement in the long-term (weekly) chart.
On the other hand, a trend change signal in the long-term chart may be a substantial move in the short-term even though a short-term move may seem overdone.
Hence, an overdone breakout on the short-term trend may actually be the start of a major breakout if the long-term chart is still on an uptrend.
Divergence signals are also more obvious when timeframe is compressed, for example a price-volume divergence is more obvious on the weekly compared to the daily.
Divergences on the larger timeframes also point to larger moves, and could herald major reversals.
The Dual Timeframe Technique
This involves using 2 different timeframes to trade, one to provide the roadmap and the other to time the precise entries and exits.
Strategic Timeframe: This timeframe acts as a roadmap for the execution timeframe, giving you an idea of longer-term trends, hence providing you strategic direction on how to select your setups and manage your trades.
Execution Timeframe: This is your main timeframe for trading, and will be what you are looking at as you decide on your stoploss, entries, and exits. The focus is on precision and timing, so this timeframe is like zooming in from your strategic timeframe.
For example, for my strategies, I use:
- Strategic Timeframe: Weekly chart
- Execution Timeframe: Daily chart
- Expected holding period: Can last for a few days to a few weeks (if the trend is strong)
If you are doing intraday trading, then your strategic timeframe might be the daily chart, while your execution timeframe might be the 5-minute or 15-minute chart.
In conclusion, using multiple timeframes allows one to better identify trends, and more precisely pinpoint entries and exits by zooming in and zooming out from the initial point of reference.
This also allows one to better manage risk in line with one’s time horizon and investment timeframe.
If you would like to learn how to get started in trading, also check out: “The Beginner’s Guide to Trading & Technical Analysis”
Photo with Lee Lung Nien, COO of Citibank Singapore
This year, it was once again a gruelling tough battle at the Citbank Forex Challenge. There were over 300+ teams, and only 48 made it to the finals. I am proud to announce that 4 of the 8 teams from my round that made it to the finals were from the SMU Investment Club, including the top 3. Nicholas and I topped the qualifiers again this year, unfortunately we did not fare well in the finals. However, it was some consolation that the 1st place was taken by a team comprising of my juniors from the investment club. As the research director and trainer, I am glad that the juniors I have trained under the Advanced TA training sessions have managed to perform so well this year.
Free Trading Guides
