Steenbarger and Mann on Risk

Brett Steenbarger and Adam Mann offer insights into ‘How to Manage the Psychological Risks of Trading’ (PDF). An excerpt:

“The psychologist Donald Meichenbaum introduced a technique for stress management that he called stress inoculation. He found that exposing people to low levels of an anticipated stressor helped them cope with actual stresses when they occurred. Evaluating your performance–knowing your likely drawdowns, drawups, and flat performances in advance–is a kind of stress inoculation, preparing you for the outcomes you’re likely to face even when you trade well. We are well acquainted with how emotions can disrupt trading; less well appreciated is how trading can play with our heads! As in medicine, a little inoculation can go a long way toward preventing major ills.”

You have to like the ‘inoculation’ connection. Nice ‘aha!’