In simple terms
In trading language, anchoring means giving too much weight to an initial reference. It may be an entry price, a past high, a target seen online, or the first number observed.
Saying “it used to trade at 100, so it is cheap at 60” is an example of anchoring: the past figure may be useful, but it proves neither current value nor a future return. Your entry price does not automatically become market support either.
How the term is used
The term describes a decision that keeps revolving around the anchor despite new information. A practical check is to ask: “If I had never seen that number, which current facts would support this thesis?” The question can improve the process, but it does not determine whether to buy, sell, or hold.
For the full explanation, example, and diagram, see Anchoring.
Limit
Anchoring is a descriptive bias, not a diagnosis, and it does not prove that a trade is wrong. Recognizing it does not remove uncertainty or make future prices predictable.
Sources
- CFA Institute, The Behavioral Biases of Individuals — places anchoring among cognitive biases relevant to financial decisions.
- Tversky and Kahneman, Judgment under Uncertainty: Heuristics and Biases (PubMed) — describes anchoring and adjustment in numerical judgments under uncertainty; it is not a market-forecasting model.