Shrink Rap: The Doubter-Timid Trader - TheStreet

"Doubt must be no more than vigilance, otherwise it can become dangerous."
-- G.C. Lichtenberg

"Commonly men will only be brave as their fathers were brave, or timid."
-- Henry David Thoreau

Doubter-timid traders are typically skeptics who are prone to becoming chronic worriers. What others take for granted, these investors aren't so sure about. They are quick to question what they hear and read, and aren't afraid to disagree with others. Some, for example, will engage in intellectual arguments just for the sake of a heated debate. Such types tend to be more timid in their trading, however, than in dealing with others.

Personality

Doubter-timid traders pride themselves on their critical thinking. Like the

obsessive-disciplined trading type, they aren't afraid to delve deeply into a topic that interests them. They tend to be conservative in politics, dress and the risks they take in life, including how they invest their money. They harbor a healthy mistrust for the government and other institutions they think can infringe on their individual freedoms.

Kept in check, these doubters' healthy skepticism prevents them from being vulnerable to salespeople, advertisers, con artists and the mass media. But they may become overly suspicious or even paranoid, thinking others are out to hurt them or to take advantage of them in some way.

Some from this trading type become independent, creative thinkers. They are unafraid to think of things in a new light and like to apply their insights to creative problem-solving. They may become writers, artists or musicians. Some may do innovative research or develop new technologies.

When it comes to personal safety, though, they are careful not to take unnecessary chances. They are not adventurous and prefer to limit any risk-taking to the realm of ideas.

Money Management

Because they like to think independently, the doubter-timid type is a prime candidate to become a contrarian trader or investor. They manage their money as conservatively as obsessive-disciplined traders. They also share the obsessive's desire to build a sizable savings account in case of an emergency.

Their cautious nature means they may be overweighted in risk-free and low-risk vehicles, such as bank CDs or individual bonds. When everyone else snickers at the notion of buying gold or silver funds, they don't think it's such a bad idea.

They are not easily swayed by online bulletin-board hype, stock newsletters or tips from friends or associates. They would rather pass up an opportunity than jump at something they haven't researched carefully or don't understand. They are slow to commit to an investment and know there's always another opportunity coming if the one in front of them gets away. The downside is that they may lack the ability to make the quick changes in thinking necessary for short-term trading.

Because they like to make their own decisions, doubter-timid traders tend to shy away from getting advice from investment professionals, so a traditional broker isn't their cup of tea. Above all, their cautious orientation means they favor the intermediate and long term in their time frame for holding funds and individual stocks.

Their trading frequency tends to be minimal, probably one or two trades every couple of months. Many prefer the perceived safety of mutual funds rather than individual stocks, at least for a portion of their portfolio.

Drawbacks

If they wish to counter their personality tendencies and become more active short-term traders on the upside, doubter-timids must face their bias toward negativity. If they don't, they are susceptible to becoming perma-bears and perpetual traders on the short side. But most can't stomach the anxiety that goes with short positions being held for more than a few days.

They must also become more assertive and less fearful, confronting their catastrophic expectations and natural inclination to want to run for the exits at the least hint of trouble. In the speedy world of short-term trading, doubt and timidity become a burden that can't be tolerated for very long without serious negative consequences.

When it comes to execution, for example, timidity and caution turn into fear. The doubter-timids' orientation biases them toward seeing all investments as inherently more dangerous than they actually are. This means they get anxious easily and tend to be inflexible once they have established a position.

This may lead them to hold a position longer than may be wise, as it is tough for them to make the decision to cut their losses. For this reason, it is especially important for this type to have target limits in place to take their gains, as well as stop-loss points to control their losses.

Like the obsessive-disciplined trading type, doubter-timids are horses basically bred to run the intermediate- and long-term course. They prefer to plod steadily, rather than sprint, toward gains. But because of their cautious nature, many will still be in the race when it comes time to cross the finish line, not having burned themselves out in the early stages.

Steven J. Hendlin, Ph.D., is a clinical psychologist in Irvine, Calif. He has been in private practice for the past 25 years, investing for the past 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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