What is Anchoring Bias in Trading?

What is Anchoring Bias?

Anchoring is a cognitive bias where traders cling to the first piece of information they see—such as their entry price or an analyst forecast—and underreact to new data. Anchored traders hold losers too long or ignore evolving market conditions.

Anchoring in Practice

• Entry fixation: Refusing to exit a losing trade because “it will come back.”
• Round-number anchors: Assigning undue importance to prices like 1.2000.
• Outdated forecasts: Sticking with old economic projections despite new releases.
• Historical highs: Assuming prior resistance must hold without reassessing context.

Reducing Anchoring

• Automate stops: Let predefined exit rules override emotional attachment.
• Use conditional language: “If price closes below support, I will exit” keeps decisions objective.
• Embrace new data: Update your bias after each major release or central-bank speech.
• Review mistakes: Tag journal entries where anchoring affected performance to build awareness.

Deep Dive

Most edges come from applying clear rules consistently. Expand your analysis beyond a single signal: add context from higher timeframes, recent volatility, session behavior, and catalysts. Define invalidation so a trade becomes obviously wrong fast, keeping losses small while letting winners compound.

Trader Checklist

• Higher‑timeframe bias aligns with the setup.
• Clear level or zone for entry with confluence.
• Pre‑defined stop beyond structure; 2–3R target.
• Session/liquidity supports follow‑through.
• No imminent high‑impact news unless planned.

Strategy Ideas

• Combine structure with momentum confirmation (break/close/acceptance).
• Use partials: scale out at first target; trail remainder.
• Journal results by session and pair to refine timing.

Risks and Limitations

• Thin liquidity widens spreads and distorts signals.
• False breaks around obvious levels—wait for acceptance.
• Overfitting indicators; keep the process simple and robust.

Example

Map bias on the daily chart, mark a zone, and wait on 1H for a close back above with rising participation. Enter on the retest; stop beyond the invalidation wick; target prior swing with room for extension. Record the outcome and context to iterate.