This Shrink Rap marks my 25th column, which began the week prior to the Sept. 11 disaster. I trust these columns have been useful to you in thinking about the psychology of your trading and investing. I continue to welcome thoughtful questions from readers related to the mental and emotional side of trading. And I appreciate the encouraging feedback I've received over the months.

Dr. Hendlin: Good work on the articles, and thanks for your insights into the way trading and traders are affected. I have a problem, and it's one I am sure you have come across before, but it's one I can't seem to shake. I trade futures here in England, and do better than the average trader. Over half my trades are correct calls. But when I get two or three trades wrong in a row, I agonize over getting into the next trade. It can be days before I am able to trade again.

Invariably I get it right on paper, then I am nervous as hell when I do it for real. I don't have the problem if I lose just one and I am rolling trades along when I am in the swing. I am a short intraday trader, though I wait for certain setups. I don't like having money sitting in there to suffer any drawdowns.

I am also very cautious by nature, and plan almost all my trades with military precision. I know you are going to say to just lighten up a bit, but are there any mental exercises I could do to change my frame of mind? -- J.D.

Shrink Rap: You asked for it: Just lighten up a bit. After you get stung by a few bad trades, it sounds like you retreat into a defensive trader's lock but not really a full-blown block.

One mental exercise is to reflect on how your caution and fear have protected you all this time and supported your present style of successful futures trading. Instead of seeing this as a problem, entertain the possibility that your fear of repeated losses may be part of your "military precision" that has kept you doing well in daytrading. It may, in other words, be part of your personality and style of trading to react this way, and not something to struggle against or overcome.

If this interpretation doesn't seem to fit for you, consider experimenting by coming back into the market gingerly with a small position, as a way to work yourself back into the water sooner than the time you now take after a series of losses.

That said, I would prefer that you reframe your fear, seeing it as a support and "warning radar" rather than as something to be eliminated. You need to realize that if you are going to pride yourself on marching with military precision, a measure of fear may be part of the drill. I'd suggest you learn to respect your fear. Think of it like this: Fear is just another word for somethin' left to lose.

Have Your Cake and Eat It, Too?

Dr. Hendlin, my question is this: I have one stock that I bought about eight months ago that has gained over 32% and broke its previous 52-week high twice in the past week. Now I am getting nervous -- the stock seems to show good resilience and strength, but it can be volatile and swing three to four points in either direction in a day. It is not a tech stock and it has been steadily growing since 1999. It has great earnings, an awesome P/E and even better P/S . When should I sell this? I don't want to see my profits reduced on this stock sharply, nor do I want to dump it and then see it gain another 15%. -- M.K.

Shrink Rap: One tactic is to decide what percentage gain or absolute dollar amount is the least you will be satisfied to walk away with as profit. Put in a limit order to sell at this price -- not a mental sell order but an actual order.

You mention the stock typically moves within a three- to four-point daily range. This means you need to consider this trading range when you decide where to place your sell limit, as you want to give the stock enough room to breathe while at the same time assuring your minimal acceptable gain. You also want to set the sell limit just below any obvious support level, as the congestion of sellers at support will increase your chances of being stopped out, perhaps only to watch the stock move back up through its daily range.

Frankly, after eight months of holding and a healthy 32% gain, you are perilously close to being swallowed by the jaws of greed when you say you don't want to lose the chance of another 15% gain. In this market, a 32% gain on anything held that long looks pretty good to most investors, and it should to you, too. Personally, I would take the full gain at this point and be content.

But if the lure of a breakout to a new high is too tantalizing, another way you can play this is to sell half your position at one limit, locking in a minimum gain, while holding the remaining half for another 10%. Should the stock break through the 52-week high and move up 5%, roll up your stop limit to this point. Then you will have locked in one half of your position for maybe a 32% gain, and one half at around 37%. That should satisfy your desire to squeeze the remaining juice out of it, while also guarding against it turning into a lemon.
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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