What it means
The sunk-cost fallacy in trading: continuing to hold a losing position because of the loss already incurred. Logically, the loss is already realized economically — whether you exit or hold, those funds are at risk. The decision SHOULD be based on the forward prospects of the asset, not the prior path. But retail traders consistently double down on losers 'so the average price comes down' or 'to wait for recovery,' destroying capital that could be redeployed.
Why it matters
Sunk-cost thinking is what produces 'bag holders' — traders who hold catastrophically losing positions for years because they can't accept the loss. The fix is psychological: separate the past (sunk costs are gone) from the future (forward analysis is what matters now). The professional version: evaluate every position as if entering today at current price.
How to use it
Daily question on losing positions: 'If I had this cash today, would I buy this asset at current price?' If no, sell. The capital tied up in 'waiting for recovery' has opportunity cost: it can't be deployed in higher-expected-value positions. Sunk-cost holdings produce the largest single category of avoidable retail underperformance.
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