What is the sunk cost fallacy in trading?
In one line: The sunk cost fallacy is sticking with something because of the money, time or effort already spent on it, instead of judging what makes sense now.
The idea
A "sunk cost" is gone. You can't get it back by waiting.
The fallacy is letting it decide what you do next. "I've already lost so much, I can't sell now."
A simple example
You buy 100 shares at $30. Your stop is $28, so your planned risk is $200.
Price falls through $28. You don't sell. "I'm already down $200. Selling makes it real."
It falls to $24. Now you're down $600. You buy 100 more "to lower the average."
At $22 you're down $1,400 on a trade that was planned to risk $200.
The $200 was sunk the moment your stop was hit. Every choice after that was about the past, not the chart.
Why it matters
Sunk costs show up all over trading:
- Holding a loser past the stop.
- Adding to a loser to "get back to even." See averaging down.
- Sticking with a strategy that fails your tests because you spent months on it.
Each one swaps a small, planned loss for a bigger, unplanned one.
A common mistake
Thinking a loss isn't real until you close it. The account value has already dropped. Closing just stops it from dropping further. Your Stop loss exists so this decision is made before emotions get a vote. More in how to set a stop loss.
The only question that matters: given what the chart shows right now, would I open this trade today? If the answer is no, the money already lost doesn't change it.
Questions
What is an example of the sunk cost fallacy in trading?
Refusing to close a losing trade because you've "already lost too much to sell," then watching the loss grow.
How do you stop the sunk cost fallacy?
Decide your exit before you enter, place the stop order with the trade, and judge each open trade only on what the chart shows now.
Is the sunk cost fallacy related to loss aversion?
Yes. Loss aversion makes losses feel about twice as painful as gains feel good, which makes closing a loser feel worse than it should.
Want the next step? We'll walk you through it.
Four free lessons by email, one every few days — each with a 10-minute exercise on a real chart.
Send Me the Free Lessons 4 short emails · No spam · Unsubscribe anytimeOr see the whole method, step by step:
See What’s Inside the Course Try everything free first. Decide when you're ready. · Open the free chart tool (works in the TradingView phone app)One chart idea a day, in plain English. Follow along: