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Spencer Li

Anchoring Bias – I Refuse to Change My Mind!

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.

AnchorWhat it sounds likeHow 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

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Spencer Li

How to Think Like a Trader by Changing your Frame

trading psychology

Trading Psychology: The Behavioral Biases That Cost Traders Money (and How to Beat Them)

Last updated: 3 July 2026 · By Spencer Li, CFTe

Trading psychology is the study of how your own mind, not the market, decides whether you make or lose money. The market is a crowd of people with different beliefs, different theories, and different fears, and that mix is what creates the price moves you are trying to trade. To exploit those moves, you first have to understand yourself. The biggest threats are a handful of well-documented mental shortcuts: overconfidence (your estimates are too sure), optimism (you think you are above average), belief perseverance (you cling to a losing opinion), anchoring (you fixate on an arbitrary first number), availability bias (recent, vivid events feel more likely than they are), and herd instinct (you copy the crowd). None of them go away just because you read about them. The fix is not to delete the bias, it is to build a system and a routine that catches you in the moment before the bias costs you. Awareness first, then process.

Here is each bias, where it shows up at the screen, and what to do about it.

Why does psychology matter more than strategy in trading?

If we look at who actually participates in the markets, we find many different kinds of people, beliefs, and theories. Those differences are what create price movements and patterns in the first place. So a trading edge is really two things. One is reading the crowd. The other is not being the crowd’s easiest victim.

There is a useful idea from behavioural finance called the theory of limited arbitrage. It says that when irrational traders push price away from fair value, rational traders are often powerless to correct it. The error can persist, and even widen, long enough to wipe out the person betting against it. In other words, “I am right and the market is wrong” is not a position size. The market can stay irrational longer than you can stay solvent.

That is why understanding your own wiring matters. Choose a strategy that fits your personality, and stay aware of your biases so they do not run the trade for you.

The 6 biases that quietly drain trading accounts

To say anything precise about how price deviates from fair value, behavioural models borrow from decades of experiments by cognitive psychologists on how people form beliefs and preferences. Here are the six that hit traders hardest, side by side, before we go through each one.

BiasWhat it isHow it shows up at the screenThe fix
OverconfidenceYour estimates are far too sureYou size too big and skip the stopPre-set risk per trade, written down
Optimism / wishful thinkingYou assume you are above average“This one will work out”, held too longJudge the process, not the hope
Belief perseveranceYou cling to an opinion too tightlyYou ignore evidence the trade is wrongDefine your invalidation point in advance
AnchoringYou fixate on an arbitrary first number“I will sell when it gets back to my entry”Anchor to structure, not your buy price
Availability biasRecent, vivid events feel more likelyOne crash makes you fear every dipTrade the base rate, not the last headline
Herd instinctYou copy what the crowd is doingYou chase the hot IPO or the hot tipHave your own setup, or stand aside

Overconfidence: your confidence interval is too narrow

The evidence here is extensive, and it shows up in two ways. First, the confidence intervals people put around their estimates are far too narrow. Ask people for a 98% confidence range on something like the level of the Dow in a year, and the true number lands inside that range only about 60% of the time. Second, people are poorly calibrated on probabilities: events they call certain happen only around 80% of the time, and events they deem impossible happen about 20% of the time.

For a trader, that “impossible 20%” is the gap that blows up accounts. The trade that “can’t” go against you is exactly the one you sized too big and forgot to put a stop on.

Optimism and wishful thinking: nearly everyone is above average

Most people hold unrealistically rosy views of their own abilities. In surveys, over 90% of people rate themselves above average on things like driving skill, getting along with others, and sense of humour. People also run a systematic planning fallacy: they predict tasks (writing a survey paper, say) will finish much sooner than they actually do.

At the screen this becomes the hope trade. You do not cut the loser because surely it comes back, and you are, after all, a better-than-average trader. The market does not grade on a curve. Personally, I trust the process I can write down over the optimism I happen to feel that morning.

Belief perseverance: clinging to a loser

Once people form an opinion, they cling to it too tightly and for too long. Two effects are at work. People are reluctant to go looking for evidence that contradicts them, and even when they find it, they treat it with excessive skepticism. There is a stronger version, confirmation bias, where people misread evidence against their hypothesis as actually supporting it. In academic finance, this predicts that someone who starts out believing in the Efficient Markets Hypothesis may keep believing it long after compelling evidence against it has piled up.

In a trade, belief perseverance is the held loser with the moving goalposts. Each time the thesis breaks, you invent a new reason it is still valid. The cure is unglamorous: decide before you enter what price proves you wrong, and leave when it prints.

Anchoring: fixating on an arbitrary number

When people estimate, they start from some initial value (often arbitrary) and adjust away from it, and the adjustment is usually too small. They “anchor” on the first number. In one experiment, subjects estimated the percentage of United Nations countries that are African. Before answering, they were asked whether their guess was higher or lower than a random number between 0 and 100. The random number moved their answers a lot: people compared to 10 estimated 25%, while people compared to 60 estimated 45%.

The trading version is anchoring to your own entry price. “I will sell when it gets back to what I paid.” The market does not know or care what you paid. Anchor to structure (support, resistance, the level that invalidates the idea), not to your cost basis.

Availability bias: the last vivid event feels likely

When judging how likely an event is (the odds of getting mugged in Chicago, say), people search their memory for examples. That is sensible, but not all memories are equally easy to retrieve. More recent and more vivid events (a close friend getting mugged) weigh too heavily and distort the estimate.

For traders, one fresh crash makes every pullback feel like the start of the next one, so you sit out good setups. One lucky breakout makes every breakout look like easy money, so you chase. Both are the last vivid memory talking, not the base rate.

Herd instinct: following the crowd off the cliff

If this is you, you do what the rest of the market is doing. A hot new IPO, a stock that just crashed and is suddenly “a hot buy”, a rumour that some name is about to fly, and you pile in with everyone else. It is not always wrong. The market is the sum of all participants, so the crowd is often right. But the market is also partly random, and BLINDLY following it is wrong. The crowd is right until the exact moment it is not, and that turn is where the late followers get hurt.

“I know about these biases, so I am fine.” You are not.

Economists used to wave this evidence away with three arguments: people learn their way out of biases through repetition, experts make fewer errors, and stronger incentives make the effects disappear. Each of these softens the bias a little. None of them wipes it out.

Learning gets muted by errors of application. Explain a bias and people understand it, then immediately violate it again on the next specific case. Expertise often hurts rather than helps: experts armed with sophisticated models have shown more overconfidence than laymen, especially when they get only limited feedback on their predictions. And in trading, feedback is noisy and slow, which is exactly the condition under which expertise breeds overconfidence.

So reading this article does not inoculate you. Do note that, knowing the bias and not acting on the knowledge are two different skills. That gap is the whole game.

The human edge: where awareness becomes process

A scanner will flag a setup in a second, and an AI will recite all six of these biases back to you on demand. What neither will do is stop your hand when you are about to add to a loser, oversize because you “know” this one works, or chase the same hot tip the whole timeline is chasing. The biases are easy to name and hard to override, and the override is the work. That is the psychology edge, one of the Five Edges a machine cannot trade for you. The way you make awareness stick is not willpower, it is a written process and a routine that runs the same way on your best day and your worst.

FAQ

What is trading psychology?
Trading psychology is how your emotions and mental biases affect your trading decisions. It covers the systematic errors (overconfidence, anchoring, herd instinct, and others) that push traders into oversizing, holding losers, and chasing crowds, and the habits and rules used to counter them.

What is the most common psychological bias in trading?
Overconfidence is among the most damaging. People set confidence intervals that are far too narrow, so the outcome they think is “impossible” still happens about 20% of the time, which is the gap that leads to oversized, unstopped trades.

Can you get rid of behavioral biases if you just learn about them?
No. The evidence shows learning, expertise, and bigger incentives only soften biases, they do not remove them. People understand a bias when it is explained and then violate it again on the next trade. The reliable fix is a written process that catches the bias in the moment.

How do I stop trading with the herd?
Have your own setup with a defined entry, stop, and invalidation, and only act when your rules say so. If a move is just “everyone is buying it”, that is not a setup, that is a reason to stand aside. The crowd is often right until the exact moment it is not.

What is anchoring in trading?
Anchoring is fixating on an arbitrary reference number, most often your own entry price (“I will sell when it gets back to what I paid”). The market does not know your cost basis. Anchor your decisions to market structure (support, resistance, the level that invalidates the trade) instead.

Which of these six do you catch yourself doing most? For me it is the held loser. Naming yours is step one. Building the rule that stops it is step two.

If you want the bigger picture of how mindset fits with method and risk, read the pillar: The Definitive Guide to Trading Psychology and Mindset.

Want a process that runs the same on your best and worst day? Grab the free 15-Minute Swing Trading Starter Kit. It is the exact routine I use to scan once a day and trade any market in 15 minutes, biases and all.

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

Definitive Guide to Trading Psychology and Mindset (pillar) · How to control your emotions when trading · Risk management and position sizing

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Spencer Li

The Psychology of the Stoploss – Why is it so Hard to cut Losses?

Many new to trading have the tendency to liquidate positions that show a small profit, yet they keep those positions that show a loss as are unwilling to take a loss, in hope that prices will rebound. Such a counter-intuitive strategy will result in small wins and large losses, but why do people still do it? The new science of behavioral finance psychology may offer an explanation.

 

 

1. Disposition Effect

Investors are less willing to recognize losses (which they would be forced to do if they sold assets which had fallen in value), but are more willing to recognize gains. This can be explained by the value function curve, where investors turn more risk-seeking as the stock depreciates. As shown by studies on ex-post returns, it would be more profitable to cut losses fast and let profits run. Hence, investors should treat unrealized losses as a sunk cost, and focus on reducing prospective costs (likelihood of more losses). Unfortunately, irrational hope destroys any edge their analysis provides, thus resulting in an unfair gamble.

2. Loss Aversion / Breakeven Effect

With its roots from prospect theory, this refers to investors’ tendency to strongly prefer avoiding losses to acquiring gains. For loss aversion, investors prefer an uncertain gamble to a certain loss as long as the gamble has the possibility of no loss, even though the expected value of the uncertain loss is lower than the certain loss. For the breakeven effect, investors prefer a gamble that offers the potential of recovering to finish at an aspiration level rather than a certain rate of return.

Some studies suggest that losses are twice as powerful, psychologically, as gains. Hence, investors will cling to the hope (including rationalization) that prices will rebound to their entry price, which they have now established as a reference point. However, this reference point is illogical, since their entry point does not affect the future direction of prices. One question to ask is, “if you don’t have a position now, would you open a new position?”

If prices fall past their stoploss (showing that their analysis was wrong), it means that the odds are now against them. If prices fall but do not hit their stop, and subsequently rises back to breakeven, it actually shows that their initial analysis is still correct (not proven wrong), which means that exiting at breakeven is in fact destroying their winning trades. This will lower their hitrate by causing them to exit winners prematurely.

 

Behavioral Analysis – Value Function Graph

 

How can traders overcome these biases?

Traders should keep mind that trading with an edge will increase their wealth over time, but it is not possible to be right on every trade. The number of times you win or lose doesn’t matter. It is how much you lose when you are wrong and how much you win when you are right that matters. One should also separate decision-making from execution, meaning to “plan the trade” and “trade the plan.” A good way to manage risk is to use a stoploss to limit one’s downside, and pick trades with good R/R (reward:risk ratios) so that one’s winners will be more than their losers. This will allow one to cut their losses fast, and let their winners run.

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