Ever found yourself clinging to a trade entry point, convinced the market will return to your “fair value”?
Or perhaps you’ve been waiting for price to hit that perfect round number before pulling the trigger?
You’ve likely fallen into the anchoring bias trap – one of the most costly psychological pitfalls in forex trading.
Anchoring bias occurs when traders become excessively fixated on a specific reference point – a price, a level, an expert prediction – and make subsequent decisions based heavily on this “anchor” rather than responding to current market conditions.
Our brains love reference points. But in the dynamic forex market, this mental shortcut can be devastating to your trading account.
How does anchoring bias usually show up in your daily trading routines? Here are examples:
Price Level Fixation
Price level fixation happens when traders give undue importance to round numbers (1.2000, 1.1500) or previous highs and lows.
You probably said, “I’ll buy when EUR/USD hits 1.0500” – but what if market momentum shifts at 1.0525?
Many profitable opportunities are missed waiting for price to hit an arbitrary “perfect” level that holds no real significance.
This rigid focus on specific price points blinds you to the market’s actual structure and flow, causing you to miss valuable entries or exits simply because price didn’t touch your magic number.
Authority figure influence
When a respected analyst forecasts “dollar to collapse” or “bitcoin to hit $500,000,” these predictions can become powerful anchors that warp your perception.
You start interpreting all market movements through this lens, ignoring contradictory evidence that doesn’t fit the narrative you’ve latched onto.
This dependence on external opinions undermines your ability to think independently and recognize market shifts in real-time, often keeping you in positions long after the market fundamentals have changed.
First impression bias
After spending hours analyzing a currency pair, you develop an emotional investment in your conclusion. When new information emerges that contradicts your view, anchoring bias makes you dismiss the fresh data rather than adapt your position. Your initial analysis becomes a reference point that’s increasingly difficult to abandon.
This emotional attachment to your original view creates dangerous blind spots where you filter out critical information that could save you from significant losses, essentially trading against reality rather than what the market is actually showing you.
So, how can you break free from these anchors? Here are three ways:
Start by documenting your thinking process. Keep a detailed trading journal that captures not just what you traded but why. Review it regularly to identify when anchoring has influenced your decisions. Note specific instances where you resisted new information because it conflicted with your initial view.
Implementing multiple time frame analysis also helps provide perspective beyond your anchored reference point. A bearish daily chart might reveal a bullish weekly trend or vice versa, helping you see beyond your fixed viewpoint.
Finally, focus on the current context. When evaluating positions, ask yourself: “If I were entering this trade right now with no prior involvement, what would I do?” This mental reset helps counter anchoring by centering you in present market conditions rather than past reference points.
The market doesn’t care what price you think is “fair” or what an expert predicted last month. It moves based on the collective actions of all participants responding to evolving conditions. The most successful traders aren’t those who stick to their guns – they’re the ones who adapt as the market tells its story, one price bar at a time.