Anchoring

Trader's Glossary · Psychology

Definition. The tendency to rely too heavily on the first piece of information or number that comes to mind, even when it's irrelevant.

How it works

Tversky and Kahneman described the phenomenon (1974). In trading the “anchor” is often the entry price, yesterday's close or a round number.

Example

A trader judges the situation through the lens of their entry price instead of what the market is showing now.

What to watch out for

The market doesn't know your entry price. It helps to judge the situation as if you had no position.

See also

Confirmation bias, Disposition effect, Loss aversion.

More in Hetman Capital Club

You'll find the full explanation with graphics, examples and exercises in the 🧘 Trader's body and mind space, and its use in the live market in the 🔴 Live Room. Both are available to Club members (in Polish).

Educational content, not investment advice.

Full article in the Atlas of biases: what this bias looks like in trading, an example and the research.