Foundations3 min read

Anchoring

An arbitrary number influences a subsequent judgement. In markets the anchor is usually a price, and the most common one is what you paid.

MadStockAlerts Research · Updated August 28, 2026

What to take away

An initial number affects an estimate even when it is irrelevant.
The entry price is the most common anchor and it carries no information.
Prior highs and round numbers act as anchors for the whole market.
Analyst targets and prior forecasts anchor subsequent revisions.
Awareness of the effect does not remove it.

MAD Academy Training Video · 0:45

The Price You Paid Is Irrelevant

Your entry price is a fact about your history, not about the security, yet it dominates decisions it should have no part in.

This lesson is part of a Stock Alerts + Tools plan.

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The effect

In the classic experiments, participants exposed to an arbitrary number before making an unrelated numerical estimate produced estimates biased toward it. The effect persists when participants are told the number is random.

That last property is the one that matters here. Anchoring is not a mistake that can be corrected by knowing about it, which is why the countermeasures that work are procedural rather than attentional.

The anchors in markets

Anchor	How it operates
Your entry price	Break even becomes a target, and it is visible to nobody else
A prior high	The price is described as cheap relative to it, whatever has changed since
A round number	Orders cluster there, which makes this anchor partially self-fulfilling
An analyst target	Subsequent revisions move toward it rather than away
The 52-week range	Position within it feels meaningful and is a description of the past year

The third row is the one anchor with a mechanism behind it: because many participants anchor on the same round numbers, orders genuinely cluster there, which makes the level real in a way the others are not.

The entry price problem

The price paid is a fact about the past that carries no information about the future. Every other participant faces the same distribution of outcomes with a different entry price, and the security does not know what anyone paid.

The question that removes the anchor

1The position is down 20 percentWhich is a statement about your entry, not about the security
2Would you open it today, at this priceThe question that ignores the anchor
3If no, the anchor is the only reason it is held
4If yes, the entry price was never relevant

Asking whether the position would be opened today, at today's price, replaces a comparison against an irrelevant number with a comparison against the current alternative.

The forecast version

Anchoring also operates on forecasts. A revised estimate tends to move a modest distance from the previous one rather than being formed independently, which is why analyst revisions are documented to be gradual and serially correlated.

That is one mechanism behind the post-earnings drift literature: if estimates adjust gradually toward a new reality, prices may as well, which is a behavioural explanation for an effect that has been documented for decades.

Anchors that are shared

Most anchors are private and carry no information. A small number are shared across the market, and those have a mechanism behind them that the private ones do not.

Anchor	Shared?	Consequence
Your entry price	No	Visible to nobody else. No mechanism at all
A round number	Yes	Orders cluster there, which is measurable in the book
The 52-week high	Yes	It appears in screens and lists that many people watch
A prior significant high	Partly	Visible on every chart, and the population that traded there is real
An IPO price	Yes	A known price at which a large identifiable group acquired

The distinction is exactly the one the support and resistance article draws. A level that many participants can see is a level orders cluster at; one only you can see is a bias.

That gives a usable test for any level: could another participant find it without knowing anything about your position. If not, it is an anchor rather than a reference.

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