Anchoring: why your entry price haunts your exits

"I'll sell when it gets back to what I paid." If you've ever thought it, you've met anchoring — and it's quietly one of the most expensive habits in trading.

The classic finding

In their foundational 1974 work, Amos Tversky and Daniel Kahneman showed that people latch onto an initial number — an anchor — and adjust insufficiently from it, even when the anchor is irrelevant. The first figure you see warps every judgment that follows.

In trading, the anchor is your entry price.

Why it's a problem

Here's the uncomfortable truth: the market does not know or care what you paid. The right question is always given everything I know now, is this a position I'd want? — not am I up or down from my entry?

But anchoring flips it. Traders hold losers waiting to "get back to even," and sell winners the moment they've recouped a prior loss, because the entry price has become the reference point for every decision. The past contaminates the present.

Breaking the anchor

The cure is to make decisions on information that has nothing to do with your cost basis:

• Exit rules tied to current conditions or a pre-set risk limit, not to "break even."
• A defined plan made before entry, so the entry price isn't the thing you negotiate against later.
• Automation that closes a position on its rules, indifferent to what you paid.

The entry price felt important because it was yours. To the future of the trade, it's just a number from the past — and the traders who internalize that stop letting it run the show.

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This article is educational and does not constitute investment advice or a recommendation. Options trading involves substantial risk and is not suitable for every investor. Autopilot Options does not guarantee profits or prevent losses. Past performance and historical data do not guarantee future results.