Editor's note: Welcome to "Shrink Rap," a public forum where readers' questions about the psychological issues surrounding trading, investing and money are addressed by Dr. Steven Hendlin, Ph.D. The following forum is comprised of questions submitted to Dr. Hendlin in response to his debut column on Sept. 5, 2001. Topics for future "Shrink Rap" forums may include dealing with the pressures of trading; obsessive thinking; trading addiction; dealing with losses; perfectionist thinking; trader's block; improving concentration; neutralizing fear and greed; balancing isolation and information overload; and anything else that may be of concern to you. "Shrink Rap" appears on RealMoney.com every Wednesday. Be sure to send your queries to Dr. Hendlin at Steven.Hendlin@TheStreet.com, and, as always, let us know what you think.

Trader's Block, Be Gone!

Dr. Hendlin, being a trader yourself, you must have experienced or observed what I call "trader lock," or the inability to execute when market movement does not agree with one's personal beliefs and assumptions, with the resulting increase in stress and doubt. Maybe this would be a useful topic for the many traders on

RealMoney.com

who frequently experience this situation. -- A.D.

Shrink Rap:

The "lock" you describe is the result of one form of

cognitive dissonance

, or the inability to reconcile information that is inconsistent with our beliefs, especially the beliefs about our self-worth. Information that doesn't support what we believe is true can be very unsettling.

For example, when we see the market break down toward new lows, and we think it ought to be moving up due to many interest-rate cuts, we are forced to face the fact that we did not analyze or predict correctly. This may threaten our confidence in our predictive skills and impede our ability to take action. It may be experienced as momentary anxiety and lack of confidence that soon passes or, at worst, turns into full-blown trader's paralysis.

What to do? Learn to be less rigid in your beliefs! More fluid assumptions about what "ought" to be happening in the market allow traders to respond to what the market is telling them without putting their feelings of self-worth on the line constantly.

Instead of merely inspiring dread, the "lock" sometimes can be a useful warning signal that a belief we hold dear needs to be questioned or reformulated. A willingness to admit that our assumptions and predictions are sometimes wrong permits us to change directions more easily, and to make better decisions long-term.

Security Is Job One

Note: The following two questions revolve around a similar issue, so I have answered them with one response.

Could you address the psychological problem of the perceptions surrounding "traders?" It is very difficult for me to tell anyone I daytrade at home, because it sounds sleazy to most people, and it makes me feel somewhat ashamed of my career, even though my income is far greater than most. -- O.F. Here is my specific mental bug: Trading from the dark side (i.e. the short side) keeps me awake at night, even when I'm in small, tightly-stopped positions. I can't figure it out or get past this problem, even thought my numbers prove being short has been the right thing to do. Over the last year my shorts have kept me ahead of the game, but still it feels as if I'm doing something wrong and dangerous. And I can't talk about shorts in public because invariably I'll be seen as taking bread out of someone's mouth. I don't want to feel like a pariah just to make a buck. Please help. -- B.M.B.

Shrink Rap:

Let's kill two birds with one stone here. Both writers express their

insecurity

about the trader role they have chosen. Trading is tough enough in these volatile markets without feeling insecure about the job itself. If you are going to earn a living by trading (or even just be an active trader on a part-time basis), you've got to be comfortable with the role and all the tactics and strategies that go with it. Good traders must have a high level of conviction about their right to make as much money as possible through their trading skills.

For the writer of the first question, this means being less concerned with what others are thinking about the popular notion of daytrading. He should ask himself: "Why does it matter so much to me what judgments others are making about my trading? Why am I feeling ashamed of my chosen field of work?" Asking these questions may reveal his ambivalence about what it means to be a trader, and possibly, his more general ambivalence about money.

The second question-writer needs to stop worrying about "taking bread out of someone's mouth." There is, of course, nothing "wrong" in using a short-selling strategy, any more than there is something wrong in betting on the "Don't Pass" line in craps.

The reality is that short-term trading is a zero-sum game; on every trade, someone is winning and someone is losing. Once traders accept that premise, it is much easier for them to stop being so concerned about the welfare of the other guy. The market shouldn't be personalized in this way: It's not just you vs. the other guy. Traders with a misplaced sense of concern for who's on the other end of the trade will never be able to take the decisive action required to do the job.

Both of these traders should consider attending major traders' conferences, join local trading support groups and stay attuned to trading literature and Web sites. These activities promote a sense of affiliation and camaraderie that help counteract the isolation of being a trader, as well as build a positive trading identity.

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 (McGraw-Hill, 2000), 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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