Continuing a losing course of action because of resources already invested — driving traders to add to losers and refuse to cut losses.
The sunk cost fallacy is the tendency to continue an investment because you've already put money or effort into it, even when continuing makes no sense. In trading, it shows up as "I've already lost $500 on this trade, I can't close it now" or "I've spent two months learning this strategy, I can't abandon it."
The fallacy is that money already lost is GONE. It doesn't matter to the next decision. The only question is whether the FUTURE expected return justifies the current action. If the trade no longer has positive expectancy, exit. The fact that you've already lost on it doesn't make staying in any better.
Sunk costs are everywhere in trading. Strategies you've spent months learning. Indicators you've bought. Pairs you specialize in. Positions you've held for weeks. None of that history matters for the current decision — only the forward-looking expected value matters.
The collapse of Long-Term Capital Management in 1998 was largely a sunk cost fallacy at scale — the founders kept doubling down on losing positions because of the resources already committed. The result was a $4.6 billion loss that nearly broke the global financial system.
Frequently asked about sunk cost fallacy
What is a sunk cost fallacy in trading?+
Continuing a losing course of action because of resources already invested — driving traders to add to losers and refuse to cut losses.
When will I see sunk cost fallacy used in real trading?+
Every time a trader holds a losing position because of how much they've already lost, rather than because of fresh analysis.
What is the most common mistake traders make with sunk cost fallacy?+
Adding to losers to "average down." This is sunk cost in action — you're committing more capital because you're already committed. The math doesn't support it; the emotion does.
What do experienced traders know about sunk cost fallacy that beginners don't?+
After every loss, force yourself to say out loud: "that money is gone. The next trade is independent." This verbal reset breaks the sunk cost loop and lets you make the next decision rationally.
Read the lesson here. Mark the chart on TradingView. Compare brokers with the checklist.
TradingView is the chart workspace most learners already recognize: watchlists, alerts, drawings, and clean multi-market charts. Broker research stays methodology-first: jurisdiction, costs, platform, withdrawals, and risk before any account decision.