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Robots Glossary

Sunk cost fallacy

Sunk cost fallacy - The sunk cost fallacy is the tendency to continue a losing trade or strategy simply because one has already invested time or money into it. Traders may hold onto a losing position to “not waste” the initial effort, even when rational analysis calls for exiting. It’s essentially letting past losses dictate present actions. This bias is exemplified by the Concorde fallacy in business. Investopedia defines the sunk cost trap as “the unfortunate tendency to commit additional resources to a failing endeavor rather than abandon it”. In trading, that means ignoring new information and hoping to break even. Automated systems counter sunk-cost bias naturally: once a stop or condition is hit, they exit regardless of how much has already been lost. A well-designed forex robot enforces cutting losses by its programmed rules, preventing the trader from second-guessing due to sunk costs.