Anchoring Bias
Anchoring is relying too heavily on the first number you saw — such as your entry price or a stock’s old high — when judging what something is worth now.
Anchoring happens when one number — your entry price, an old high, an analyst target — sticks in your head and pulls every later judgement towards it. The market does not know or care what you paid, so an anchor can keep you in a losing Position or stop you buying a good one.
- Reading time
- 4 min
- Also called
- Anchoring, Anchoring and adjustment, Anchor effect
- Updated
Anchoring bias in plain words
Anchoring bias is letting the first number you saw — often your entry price — weigh too heavily on later decisions, even when it no longer matters.1
Anchoring and adjustment is classed as an information-processing bias — a thinking error rooted in flawed reasoning.2
In practice it can mean holding an asset far longer than you should, or judging its worth by the anchor value.1
How to spot and reduce anchoring
Name the anchor
Write down the number you keep thinking about, such as your entry price; IG suggests research to identify your own anchor.1
Ask the fresh question
Would you open this trade today at the current price?
Use current data
Base the decision on present Support and Resistance, Trend and news, not the old number.
Pre-set exits
Place a Stop Loss and Take Profit when entering, before the anchor takes hold.
Change the framing
How information is shown changes how we judge it, so look at the chart with your entry line hidden.3
Review in the journal
Note in your Trading Journal when an old number drove a decision.
Worked examples
Example 1 — Waiting to get back to even
Loss growsA hypothetical trader buys at 50; the price falls to 40 and the reasons for the trade are gone.
| Entry price | 50 |
| Current price | 40 |
| Further fall while waiting | −8 |
Holding only to get back to 50 is anchoring, which can mean holding an asset far longer than you should.1
Example 2 — Old high as a target
Anchor avoidedA hypothetical stock once traded at 120 and now trades at 70 after weaker earnings.
| Old high | 120 |
| Current price | 70 |
Treating 120 as fair value lets an initial piece of information have disproportionate influence; the trader values the stock on current earnings instead.1
Example 3 — Fresh-eyes exit
Smaller lossA hypothetical trader asks, 'Would I buy this today?' and the answer is no.
| Loss at exit | −4 |
| Further fall avoided | 9 |
Comprehensive research to identify your own anchor led to an exit before the larger fall.1
Anchored vs fresh decision
| Aspect | Anchored | Fresh |
|---|---|---|
| Reference point | Entry price or old high | Current price and data |
| Key question | When will it get back? | Would I buy it today? |
| Typical result | Holding losers | Cutting or re-planning |
| Bias type | Cognitive error | Reasoned check |
Where anchoring shows up
Losing positions
Waiting for the entry price to return.
Price targets
Fixing on an old high or analyst number.
Valuation
Judging Price-to-Earnings Ratio against a past level.
Order placement
Placing Limit Order prices at round or old levels.
Advantages and disadvantages
Advantages
- Naming the anchor makes it easier to ignore.
- Fresh-eyes checks improve exits.
- Pre-set exits reduce emotional holding.
Disadvantages
- Anchors are often unconscious.
- Some reference levels are genuinely useful.
- Fresh checks take discipline.
- Awareness alone rarely removes the bias.
Going deeper
Read as far as you need. Each level builds on the one before it.
Initial information
Beginner
Anchoring means a first piece of information keeps pulling later judgments towards it, whether or not it is still relevant.1
Evidence on estimates
Intermediate
In experiments, people's forecasts of stock returns leaned clearly towards whatever starting number they were shown.1
Cognitive error
Advanced
The CFA Institute classes anchoring and adjustment as an information-processing bias; cognitive errors come from faulty reasoning and are usually easier to correct than emotional biases.2
Common mistakes
Waiting for break-even
The entry price is not a reason to hold.
Treating old highs as fair value
Conditions change.
Moving stops away
An anchor tempts you to widen a Stop Loss.
Ignoring new data
Updating too little after news.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- Anchors are first numbers that stick.
- Entry prices are common anchors.
- Ask if you would enter today.
- Set exits before entering.
- Log anchored decisions.
Frequently asked questions
Is my entry price important?
Are all reference levels anchors?
Can I remove anchoring completely?
Further learning
- Loss Aversion
Why losses feel heavier.
- Stop Loss
Exits set in advance.
- Trading Plan
Rules before the trade.
- Trading Journal
Spotting patterns.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
- IG. Six financial trading biases that may cloud your judgement (opens in a new tab) Checked .
- CFA Institute. The Behavioral Biases of Individuals (opens in a new tab) Checked .
- CFA Institute. Behavioral Finance: Theories and Evidence (opens in a new tab) Checked .
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. We are not affiliated with any publisher linked above. Last reviewed . Report an error or request a source credit.