Shrink Rap: Nothing Super About Superstitious Trading - TheStreet

"Superstition belongs to the essence of mankind and takes refuge, when one thinks one has suppressed it completely, in the strangest nooks and crannies; once it is safely ensconced there, it suddenly reappears."
--Goethe

Dear Shrink Rap: With all due respect, do you really think trading pros are going to reveal their superstitious habits, and risk having them published in your column? I'm willing to bet -- yes, I'm a gambler-impulsive type -- you get few responses to your survey. Traders, you see, are superstitious about revealing their superstitions! They think that the power in them will vanish if they talk about them. And, of course, they are too embarrassed to speak of these things openly to a shrink -- even one who is trader-friendly, like yourself. Dear Shrink Rap: My wife and I met when we were brokers at the same firm. At the time she drove a 1989 red BMW convertible with the license plate "1Bllmkt" (one bull market). She was a very good trader and I was very poor. In 1997 she made a lot of money on the short side and got a new BMW with the license plate "shrtsl" (short sale). I took the old BMW. Since then I have been hot and she very cold. We are convinced it's the car that made me a good trader, despite the fact that it has 160,000 miles on it. I will never get rid of it.Also, in 1994 I bought a Porsche, and we went into a bear market until it was stolen in 1995 and a new bull evolved. In 2000, I bought a Porsche Speedster and the bear returned! I still have the car.

Shrink Rap:

The first writer would have won his bet. There

were

only a few replies to the survey. I'll admit, I'm rather surprised at the poor response. Part of why I posed the question was to mention Jim Cramer's book. But I did think superstitions were an area that nobody discusses publicly, and was curious as to whether traders would let the proverbial cat out of the bag. Apparently (as Goethe puts it in the quote above), the cat is going to stay "safely ensconced" in the bag.

In Attracting Good Luck, Whatever Works

A superstition is defined as "an irrational belief arising from ignorance or fear." For the purposes of trading behavior, we can think of it as simply holding beliefs and/or taking actions that appear irrational in their relationship to market performance but are magically imbued with power.

All experienced traders and investors know -- despite the tools of technical and fundamental analysis, gathering information, learning good entry and exit points, and good money management -- that there is an undeniable element of luck in short-term trading. This luck factor extends to a lesser degree to intermediate-term investing, and diminishes further over the curve of time.

It's as simple as this: Knowing that an element of luck always exists means trying to influence it in our favor. We don't really know for sure what attracts "good" or "bad" luck. Superstitious behavior, then, is one form of trying to bring good luck in our direction by repeating behaviors associated with other behaviors that worked.

So to acknowledge the place of luck in the timing of trades -- when news hits that affects our positions, and all the other intangibles that we can't control that may determine whether we end up with a gain or a loss -- means we try to "stack the deck" in our favor to help deal with these intangibles. In this sense, superstitious habits are no different than anything else a trader may use to achieve a perceived edge.

But Keep in Mind...

I don't see anything wrong in having rituals that support trading confidence, as long as you keep in mind one crucial caveat. And that is this:

You have to know that your beloved superstition is not what is actually causing you to be lucky.

You have to understand that there is no causal connection whatsoever between wearing the same shirt you wore yesterday and your performance today. To think otherwise is to indulge in magical thinking, which is acceptable if you are five years old, but irrational and potentially undermining of your grasp on reality if you are an adult investing your money -- let alone anyone else's money.

Good reality-testing dictates understanding that you are

playing

with superstition -- not being ruled by it.

As long as you are very clear that your object of superstition is not really able to directly affect what happens, there is no problem in using whatever you wish to bolster your confidence. If it helps you feel better about your decision-making or makes you think you have tilted the trading gods in your favor, fine, use it.

But watch out when you start believing your magical thinking. When that happens, you could be headed for trouble. Because luck, whether it's good or bad, is bigger than your puny superstition. As long as that caveat is "safely ensconced" in the back of your mind, rub that lucky foreign coin all you want. And may the trading gods smile down upon you with benevolence.

Steven J. Hendlin, Ph.D. is a clinical psychologist in Irvine, Calif. He has been in private practice for the last 25 years, investing for the last 20 years, and actively trading online as a swing trader and long-term investor since 1996. He is the author of

The Disciplined Online Investor

recently translated into Spanish. He is pleased to receive your comments and questions for publication in his public forum columns at

steven.hendlin@thestreet.com, but please remember that he is unable to provide personal counseling or psychotherapy through the mail.

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