Market volatility can change the conditions around an investment decision as well as the price on the screen. Messages arrive faster, clients ask for reassurance and a move that was tolerable yesterday begins to feel urgent.
Before changing the position, distinguish new information from a change in the pressure to act.
Return to the investment case
Write down which assumption has changed. If the price has moved but the thesis has not, explain why that movement requires action. If the thesis has weakened, identify the evidence rather than relying on the discomfort of holding the position.
Research on cortisol and risk-taking raises useful questions about the person making the decision. It does not provide a hormone threshold that can approve or reject a trade.
Use pre-agreed limits and review conditions where appropriate. Decisions made before a volatile period can provide a reference point, although they still need revision when material information changes.
Ask a colleague to examine the proposed action without being told your preferred answer first. Compare the reasoning, especially where one person sees a genuine change and another sees a temporary reaction.
Record why you acted or held. Later, review the quality of the process separately from the financial result. A profitable decision can rest on weak reasoning, and a well-considered decision can still lose money.
