Anchoring Bias
Overview
Anchoring bias occurs when traders fixate on a specific reference point — such as their entry price, an all-time high, or a round number — and make subsequent decisions relative to that anchor rather than evaluating current market conditions objectively. This bias leads to irrational behaviour such as refusing to sell a losing position because the anchor (entry price) feels more 'real' than the current price.
Key Concepts
Entry price anchor: evaluating a position based on entry cost rather than current risk/reward. Historical anchor: fixating on an asset's all-time high or a previous price as the 'correct' value. Round-number anchor: giving undue significance to prices like 100, 1000, or 50000. Adjustment failure: insufficient adjustment from the initial anchor when new information arrives. Anchoring affects both entry and exit decisions.
Entry Signals
Before entering, ask: 'Would I enter this trade if the price had always been at this level?' Remove historical context from your analysis of the current setup. Use objective criteria (momentum, structure, volume) rather than comparisons to past prices. Evaluate risk/reward from the current price, not from where the asset 'used to be'.
Exit Signals
Manage trades based on current technical levels and risk/reward, not on your entry price. Delete entry-price lines from your chart to reduce the anchor's visual pull. Reassess positions weekly by asking: 'If I had no position, would I enter here now?' Use predetermined stop levels that are set before entry and not adjusted after.
Best Timeframes
Applicable across all timeframes and during all trade management decisions
Pro Tips
The most insidious form of anchoring in crypto is fixating on an asset's all-time high — buying an asset at 90% below ATH feels like a bargain, but it tells you nothing about current value or risk. Train yourself to analyse every chart as if you are seeing the asset for the first time. Use checklists and pre-defined criteria to reduce the influence of anchors on your decision-making.
More Topics in This Category
Confirmation Bias
Confirmation bias is the tendency to search for, interpret, and remember information that confirms your existing beliefs while ignoring contradictory evidence. In trading, this means once you form a bullish or bearish view, you unconsciously filter information to support your position — ignoring warning signs and overweighting supportive data.
FOMO & Herding Behaviour
FOMO (Fear Of Missing Out) drives traders to enter positions impulsively because they see prices rising or because social media is buzzing about an asset. Herding behaviour — following the crowd — amplifies FOMO by creating social proof. Together, these biases cause buying at tops and chasing momentum that's already exhausted.
Recency Bias
Recency bias is the tendency to overweight recent events and outcomes when making decisions, while underweighting longer-term data. In trading, this manifests as assuming recent market conditions will persist indefinitely — expecting further gains after a rally or further losses after a crash. Recency bias creates a dangerous feedback loop where traders chase recent performance rather than evaluating current probabilities objectively.
Sunk Cost Fallacy
The sunk cost fallacy occurs when traders continue holding a losing position or investing additional capital because of the resources already committed, rather than evaluating the position on its current merits and future prospects. The time, money, and emotional energy already spent become anchors that prevent rational decision-making, leading to escalating commitment to failing trades.