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Anchoring bias

Letting an arbitrary first number - your entry price, a round figure, a headline target - set the frame for every judgement that follows.

Anchoring is the habit of starting from a number you happened to see first and adjusting too little from it. The anchor does not have to be meaningful. A price you paid, an analyst target, the 52-week high, or the first quote in a chat room will all do the job.

At the screen it shows up as sentences that begin with a number instead of a reason. You hold a loser because you want to get back to your entry, which no other participant in the market knows or cares about. You refuse a good entry at 101 because you saw 99 an hour ago. You size a trade off a round number rather than off your stop distance.

The fix is to make your decisions depend on things that are still true: where the invalidation sits, what the setup is worth, how much you are risking. Writing the plan before you look at your open profit and loss removes the most powerful anchor of all.

Related: reference-point, framing-effect

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