Sunk cost
Why do traders keep a losing position open because of money already lost, and what does that cost them?
In plain words
A sunk cost is money already lost that cannot be recovered by any future decision. Keeping a position open because of what has already been lost is the sunk cost fallacy: the past loss cannot be undone, so only the position's future prospects should matter.
Why it matters
A losing position still carries risk: the market can fall further, and capital tied up in it cannot be used elsewhere. Judging a position by the entry price rather than its prospects confuses a memory with a decision, and can turn a manageable loss into a much larger one.
In a real week: ETH, week of 2 May 2022
In the week of 2 May 2022, ETH fell 10.8%, closing at 2519.71, its fifth consecutive down week, after four prior down weeks with returns of -9.05%, -6.71%, -2.24% and -3.29%. It closed in the lower third of the week range, 48.01% below its 52-week high. Holding through those weeks because of losses already taken exposed the holder to each further decline.
A common mistake
Treating the entry price as a target that must be regained. The market does not know what was paid, and an unrealised loss is a fact about the past, not an argument about the future.