Anchoring Bias

Anchoring bias is the tendency to fix on one reference price — an entry level, a recent high, a round number, or a published forecast — and to judge every later price relative to that anchor instead of to current market conditions. A trader who bought EUR/USD at a particular level may keep treating it as ‘fair value’ long after the conditions behind that decision changed, holding a losing position simply because price has not come back to the anchor. The same effect, sometimes called the anchoring effect, appears when a headline number frames expectations before data is released. Written entry and exit rules, and periodically re-assessing a position as if it were not already open, are common ways traders try to limit it.