Trading psychology
What is anchoring bias and how does it prevent traders from selling a stock below their entry cost?
By Easy Money Scanner · Educational reference · Not investment advice
The short answer
Anchoring bias causes traders to fixate on their original purchase price as a reference point, making it psychologically difficult to sell below that level even when fundamentals have changed.
How it works
This bias can lead to holding deteriorating positions far longer than a rational reassessment of current information would justify, since the original price feels like a target to 'get back to.'
An example
An investor who bought at $50 might refuse to sell at $35 despite worsening fundamentals, waiting indefinitely to 'break even' rather than reassessing the position objectively.
Risk & limitations
Decisions should ideally be based on current and forward-looking information rather than the original entry price; this concept is educational, not specific investment guidance.
Examples are hypothetical, not trade recommendations. US contract and regulatory references do not automatically apply in Canada. Rules, margin requirements and broker policies can change; confirm them with the relevant authority and your broker.