The sunk cost fallacy is the tendency to let resources already spent, money, time, or effort, influence a decision that should only be based on what happens from this point forward. In trading, it is one of the most direct paths from a manageable loss to a much larger one.
How it shows up in an open position
The clearest version of this pattern is a trade that has already hit its original stop level, where the decision to exit gets replaced with a decision to wait for the price to “at least get back to breakeven.” The reasoning feels intuitive: closing now locks in the full loss, while waiting preserves the chance of losing less or nothing at all.
The problem is that the money already lost on the position is gone regardless of what happens next. It has no bearing on whether the trade is a good one to be in right now. The decision to hold is really a decision to open a new position, at the current price, with the current information, and that decision deserves to be evaluated on its own terms.
Why it feels different from a fresh decision
Closing a losing trade makes the loss concrete and final. Holding it keeps the loss abstract and, in the moment, reversible. That difference in how final each option feels is powerful enough to override the more accurate framing, which is that the capital tied up in the position could be deployed elsewhere the moment it is freed.
A useful reframe
One direct way to counter this is a simple question: if you did not currently hold this position, would you open it right now, at the current price, based on what you know today? If the answer is no, continuing to hold it is rarely justified by how much has already been lost. What has already happened cannot be changed by anything the position does next.
