Lucas911 Thompson

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What is anchoring bias in forex and how does it affect decision-making?

Anchoring bias occurs when traders fixate on specific price levels, such as past highs or entry prices, regardless of changing conditions. For example, a trader may refuse to exit a losing EUR/USD trade until it “returns” to their entry point, ignoring new bearish fundamentals. Institutions avoid anchoring by updating strategies based on fresh data and risk models. Retail traders can counteract bias by predefining stop-losses and reevaluating setups objectively. Benefits: flexible adaptation. Risks: anchoring causes stubbornness, missed opportunities, and inflated drawdowns. In forex, adaptability trumps rigidity—anchoring is a psychological trap that blinds traders to evolving markets.