Stress Inoculation for Traders: Preparing for Opportunity by Embracing Loss

Credit once again to Despair for that little piece of life wisdom.  Optimism is great, but becomes a problem when it overshadows realism.  On the Crosshairs Trader blog, David Blair makes the point that trading is all about "misses":  being prepared to be wrong.  What is important, he suggests, is envisioning--and preparing for--scenarios of both winning and losing.

Stress inoculation is a psychological technique in which a person is exposed to negative or stressful scenarios and helped to cope with those before those scenarios actually occur.  This has been used in the preparation of soldiers for battle and is a very useful exercise before getting into market positions.  Visualizing what could go wrong and how you'd respond to it can make the difference between acting decisively in real time vs. being caught emotionally unprepared in the headlights.

Indeed, once you figure out how to deal with a trade going south, you can even figure out where there might be opportunity in the situation.  Ironically, it is by embracing the option of loss that we can free ourselves to identify the next round of opportunity.

Further Reading:  Inoculating Against Trading Stress