Anchoring bias in trading is the habit of letting one number, such as your entry price, an old high or a round figure, shape decisions it has no right to shape. The market does not know where you bought, yet that price can decide when you exit, where you put a stop and whether you take the next trade. A close cousin is the sunk cost fallacy in trading.
Quick answer: what is anchoring bias in trading?
It is judging a trade against a remembered number instead of the current chart. Typical anchors are your entry price, a previous high, a round number or someone else’s target. The fix is to set exits from market structure before entry and ask, at every decision, “would I take this trade here, now?”
What anchoring bias in trading actually is
The idea comes from research on how people judge under uncertainty. In their 1974 paper in Science, Amos Tversky and Daniel Kahneman described adjustment from an anchor as one of three mental shortcuts that are usually useful but lead to systematic, predictable errors. When a relevant number is available, we start from it and adjust.
The problem is the size of the adjustment. In his Nobel lecture, Kahneman wrote that corrective adjustments from anchors are normally insufficient, and called anchoring effects among the most robust in judgement. For a trader, that means the first number in your head pulls every later estimate towards it.
The numbers traders anchor to
In our experience, five anchors cause most of the damage, and some feel like analysis.
Your entry price
The most common one. A trade that drifts below entry becomes a trade you “just need back to break-even”, so the exit is set by your history rather than the chart. This overlaps with the break-even urge described in our article on why losses hurt more than gains in trading.
Old highs and lows
“It was 200 points higher last month, so it is cheap now.” A past price says nothing on its own about value today. Highs and lows only matter when price reacts to them, which is the difference covered in our guide to ranking key levels by how price behaves there.
Round numbers
Figures ending in 00 or 000 are memorable, so targets and stops gather there. That can make them reference points for many traders, but a round number with no structure behind it is a guess. Our guide to round numbers in trading covers how to use them as levels.
Someone else’s target
A forecast from a commentator, a forum or a friend sticks in your mind. Even if you disagree, your own target may drift towards it.
The first price you saw
You spot a move at 1.2500, hesitate, and it runs to 1.2560. Now any entry above 1.2500 feels “too expensive”, even when a valid pullback setup appears. The missed move becomes a reference point that blocks good trades.
Anchor or real level? How to tell the difference
Not every remembered price is a bias. Previous highs, for example, can matter because many people watch them, as our piece on buying at all-time highs explains. The test is whether the chart backs the number up.
| Question | Anchor | Genuine level |
|---|---|---|
| Why do I know this price? | I bought or saw it there | Price reacted there |
| Has the market reacted to it? | No clear reaction | Turns, rejections or a break |
| Would a stranger mark it? | Unlikely | Yes, from the chart alone |
| Does it fit current structure? | Ignores the latest swings | Fits recent highs and lows |
| What changes my plan? | Price “getting back” | A break of structure |
If a level fails most of these checks, treat it as a memory, not a reason. Reading the latest swing highs and lows, as in how to identify market structure, gives you a reference that the market itself created.
Worked example: one entry price, two decisions
Example (hypothetical): on a £5,000 account, a trader buys an index spread bet at 7,600 at £1 per point. The stop goes at 7,550, below the last swing low, so the risk is £50, or 1 percent of the account. We call that £50 one unit of risk, or 1R.
Price falls to 7,555 and the swing low looks fragile. The anchored trader thinks “it only needs to get back to 7,600” and moves the stop to 7,500. Price keeps falling and hits the new stop: a loss of 100 points, or £100. The plan would have cost £50.
The second decision comes later. Price forms a higher low at 7,540 and breaks back above 7,620, giving a valid entry at 7,630 with a stop at 7,580, again £50 of risk. The anchored trader skips it because “I had it at 7,600 earlier”. If price then reaches 7,730, the plan made 2R, or £100, while the anchored trader made nothing.
Across both decisions, the same chart and the same rules produce a £50 loss for the plan and a £100 loss for the anchor: a £150 gap caused by one remembered number. Spread bets are leveraged, so a fast move or a gap can also fill a stop at a worse price than planned.
How to reduce anchoring bias in trading
Numbers will stick in your head; the aim is to stop them deciding for you.
- Set exits from structure before entry. Write the stop, target and invalidation from the chart, then place them. Our guide on where to place a stop loss with price action covers the levels to use.
- Ask “would I enter here, now?” At every review of an open trade, judge it as if you had no position. If you would not buy it fresh, your entry price is the only thing keeping you in.
- Hide the entry line. Some platforms let you hide position lines on the chart. Out of sight, the entry is less likely to become a target.
- Treat a missed move as gone. Wait for the next setup on its own terms instead of chasing or refusing it; our article on how to stop chasing moves you missed covers the chasing side.
- Write down where your levels came from. Add a column to your trading journal for beginners: “Is this level from the chart or from memory?”
Common mistakes
- Calling break-even a target. Your entry is not a level on the market’s chart; if structure says the trade is wrong, it is wrong at any price.
- Looking for reasons to stay in. Anchoring to entry often teams up with confirmation bias in trading, where only the supportive evidence gets noticed.
- Measuring “cheap” by an old price. A market that has fallen a long way can keep falling; value comes from current structure.
- Copying round-number targets. Use them only when the chart has reacted there before.
- Thinking awareness is enough. Knowing the bias exists rarely changes behaviour in the moment; written rules do.
Frequently asked questions
What is an example of anchoring bias in trading?
Holding a losing trade until it “gets back to where I bought it” is the classic case. Refusing a valid entry because price was lower when you first noticed the move is another.
Is anchoring the same as confirmation bias?
No. Anchoring is fixing on a starting number and adjusting too little from it. Confirmation bias is favouring evidence that supports what you already believe, although the two often appear together in a losing trade.
Are round numbers real levels or just anchors?
They can be either. A round number becomes useful when price has reacted there, and stays an anchor when you only remember it because it looks neat.
How do I stop anchoring to my entry price?
Set the stop and target from structure before entry and never move the stop further away. Then review open trades with one question: would I take this trade at today’s price?
Next steps
Look at your last ten exits and mark which ones were set by the chart and which by a remembered price. For the wider picture, read our guide to the five psychological hurdles traders face.
The five key psychological hurdles and a rules-based risk model are both covered in our price action trading course, and the basics section is free to start.
This article is for education only and is not financial advice. Trading leveraged products such as CFDs and spread bets carries a high risk of losing money.
