Paul P Green#26

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What is sunk cost fallacy in forex trading?

Sunk cost fallacy occurs when traders keep holding or adding to losing positions because they’ve “already invested too much.” For example, doubling down on GBP/USD after a 10% loss in hopes of recovery. Institutions avoid this with strict risk caps and independent review of positions. Retail traders can combat it by treating every trade as new—past losses are irrelevant to future decisions. Benefits: freedom to cut losses quickly and reallocate capital. Risks: ignoring sunk cost leads to catastrophic blowups. Successful traders learn that capital preservation outweighs emotional attachment—every trade must stand on its own merit.