Please reload

Recent Posts

Anchoring Bias

November 27, 2017

 

A lot of traders make the classic mistake of focusing on the past and not the future. They start off well enough by making an analysis of the market and a view of where they think their instrument of choice is headed. However the second they take the trade something strange takes hold of them. The emotions of looking at profits and losses hijacks their brains from further rational analyses.

 

Instead of continuing updating the views of the markets and whether their trade is still
viable, they fixate on how much loss or profit their trade is in. 

 

For example, if someone had bought the EURUSD 1.21 and subsequently saw it drop
to 1.17, he will refuse to accept his loss and think the market has to go back to his anchored break even price of 1.21. Although nobody else knows this is his anchor price nor do they care.

 

Traders should not focus on a loss that already happened and wait for the market to make it up to them. Instead of asking when will the market make it up to me and reverse my losses, they should ask where do I expect the market to go on from this point given my updated analysis.

 

Holding onto losing positions for refusal of accepting loses is one thing, the other is
closing winning positions too quickly, although further analysis may indicate it will
continue to go up. They do this because they are afraid of losing their gains. Loss
aversion.

 

Again instead of locking profit they should ask themselves Does proper
analysis indicate the market will continue to go up.?

 

Conclusion

 

Forget you’re open prices and profit and loss on those trade when doing a reassessment of your trades, instead analyze your current exposure and see if it makes sense given the new information and outlook you have for the market.

Share on Facebook
Share on Twitter
Please reload

Follow Us
Please reload

Archive
  • Facebook Basic Square
  • Twitter Basic Square
  • Google+ Basic Square
  • Black Facebook Icon
  • Black Twitter Icon
  • Black Instagram Icon
  • Black YouTube Icon

Disclaimer: Any Advice or information on this website is general advice only. It does not take into account your personal circumstances, please do not trade or invest based solely on this information. By Viewing any material or using the information within this site you agree that this is general education material and you will not hold any person or entity responsible for loss or damages resulting from the content or general advice provided by PipsMatter, or anyone associated with PipsMatter.

 

High-Risk Warning: Online trading has large potential rewards, but also large potential risks. The high degree of leverage can work against you as well as for you. You must be aware of the risks of trading in forex, futures, commodities, cryptocurrencies, shares, and options and be willing to accept them in order to trade in these markets.

 

Forex trading involves substantial risk of loss and is not suitable for all investors. Please do not trade or invest with borrowed money or money you cannot afford to lose.

 

Any opinions, news, research, analysis, prices, or other information contained on this website is provided as general market commentary and does not constitute investment advice. We will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from the use of or reliance on such information.

 

Please remember that the past performance of any trading system or methodology is not necessarily indicative of future results.

© 2016-2019 Pipsmatter.com