A trader buys Gold at $2,050. The price rallies to $2,080, but they hold out for $2,100. The market turns, dropping back to $2,050. Now, the trader refuses to sell because they “lost” $30 of unrealized profit. They decide to wait for the price to return to $2,080 before exiting.
The price drops further to $2,030. Now, the trader refuses to sell because they are “down” from their entry. They decide to wait for “breakeven” at $2,050. The price eventually hits $1,950, increasing the risk of a stop-loss being triggered or the account facing pressure..
This cycle isn’t necessarily caused by bad analysis; it is often driven by Anchor Bias. This cognitive heuristic occurs when a trader fixates on a specific reference point, usually the entry price or a recent high-water mark, and interprets subsequent market data relative to that figure.
The market, however, has no memory of where you entered. It does not consider your break even point. To the market, your entry price is just another tick in a sea of liquidity.
The Psychology of the “Breakeven” Fallacy
One of the most influential anchor in trading is often the entry price. Traders obsessively stare at their P&L fluctuating around this number. If the number is green, they feel safe; if it is red, they feel stressed. This fixation leads to the “Breakeven Fallacy,” where a trader manages a position with the sole goal of getting back to zero rather than managing risk.
A rational operator assesses a trade based on its forward-looking probabilities. An anchored trader assesses it based on its past cost. If a technical setup has failed and the price action dictates a sell, the professional sells immediately, regardless of whether the P&L is -$50 or +$50.
The less experienced trader hesitates, anchored to the hope of exiting without a loss. That hesitation toward accepting a small reality can sometimes expose them to a larger one.
The High-Water Mark Trap
Another common form of anchoring occurs with unrealized profits. If a trader sees their open profit hit +$1,000 and then retrace to +$600, they often feel like they have “lost” $400. They become anchored to the +$1,000 figure and refuse to book the +$600 profit, determined to wait for the market to return to the high.
This thinking misrepresents probability. The fact that the price reached a certain level does not increase the likelihood that it will return to that level. In many cases , a sharp rejection can suggest a potential shift in momentum.. By anchoring to the peak, the trader may overlook the reversal signal and allow a winning trade to move back toward a loss..
De-Anchoring Techniques
Overcoming anchor bias requires deliberate mental training. The goal is to view the market in the present tense, removing the influence of your personal history with the trade.
The “Zero-State” Exercise: Periodically ask yourself, “If I had no position right now, would I buy at this current price?” If the answer is no, then holding the long position is illogical. Choosing not to sell is effectively the same as choosing to buy again at the current price..
Hide the P&L: Many professional platforms allow traders to hide the P&L column and display only pips or points. This removes the emotional dollar anchor and encourages focus on chart structure.. If the chart suggests “sell,” the decision becomes more objective without the emotional weight of the dollar figure..
Hard Stops and Targets: Pre-defining exit points before entering a trade creates an “external anchor” based on analysis rather than emotion. Once the trade is live, these levels should only be adjusted for technical reasons, not monetary ones.
Market Neutrality
The market is a continuous flow of information. Anchoring effectively freezes a trader’s perception in the past, making them slow to react to new data. A 2025 report on behavioral finance notes that successful traders practice cognitive flexibility, constantly updating their views as price action unfolds.
To operate effectively, it helps to treat each moment as independent. a. Forget where you entered. Forget what your P&L was five minutes ago. The only price that matters is the current one. By releasing the anchor,you align yourself with the evolving flow of the market rather than staying attached to where you hope it will go..
Risk Disclaimer
Trading financial instruments involves a high level of risk and may not be suitable for all investors. Past performance does not guarantee future results. The information provided is for educational purposes only and should not be considered investment advice. Traders should ensure they fully understand the risks involved and seek independent advice if necessary.