When traders communicate with each other, they often hear two terms: left-side trading and right-side trading. For beginners, most of it is confusing. In fact, left-side trading and right-side trading are essentially different ways of thinking for investors, manifested in the entry points on the candlestick chart. "Left-side trading" and "right-side trading" are two commonly used terms in the Chinese context, and the corresponding terms in the English context are counter trend and follow trend. This article will discuss left-side trading and right-side trading in detail.
What is Left-Side Trading and Right-Side Trading#
Left-side trading, also known as counter-trend trading, refers to trades where the direction of the smaller timeframe is opposite to the trend direction of the larger timeframe. It is often referred to as "fear when others are greedy, and greed when others are fearful." Right-side trading refers to trades where the direction of the smaller timeframe is the same as the trend direction of the larger timeframe, such as entering during the early stages of an uptrend and exiting during the early stages of a downtrend.
The dividing line between left-side trading and right-side trading is a high or low point in a market trend. Trades are made based on certain basic principles and strategies inherent in left-side trading or right-side trading. The success and correctness of left-side trading or right-side trading can only be verified afterwards.
Characteristics of Left-Side Trading#
The most prominent characteristic of left-side trading is trading in the opposite direction of the major trend. Buying during a downtrend and selling during an uptrend. During a downtrend, buying is done gradually to lower the average cost. During an uptrend, profits are taken gradually to reduce positions.
The core logic is that although investors cannot accurately and with high precision determine the highest and lowest points of the market, one thing is certain in the financial market: when prices fall too much, they will rise, and when prices rise too much, they will fall. Therefore, during a downtrend, buying is done gradually. This significantly lowers the cost, and once the market surpasses the turning point of the bull or bear, profits can be made. Left-side trading is good for counter-trend trading, but not all counter-trend trades are considered left-side trading. Left-side trading seeks lower average cost prices. Therefore, only trades at the end of a trend are considered left-side trading. Counter-trend trades in the early and middle stages of a trend are considered self-destructive trades. If investors choose to enter the market without a definite bottom or top, they may face the embarrassment of being trapped or missing out. Therefore, before making a decision, investors need to have proficient skills in using technical analysis tools and accurate understanding of the macro situation.
Characteristics of Right-Side Trading#
Right-side trading involves trading in the direction of the trend. Going long during an uptrend and going short during a downtrend. Right-side trading has a higher level of certainty compared to left-side trading, as left-side trading carries the risk of a potential reversal, while right-side trading is relatively easier. It's like standing on an ascending elevator, where external forces push you upward even if you don't move. Right-side trading is similar, where the overall environment is suitable for going long, increasing the probability of success.
The core logic is that right-side traders acknowledge that technical analysis does not support predicting the highest or lowest points of a trend with high accuracy. However, technical analysis can determine whether a trend has truly reversed based on the completed price movements in the market. Therefore, right-side traders actively give up the pursuit of buying at the highest point and selling at the lowest point. Instead, they start building positions after a reversal point appears and the trend is established. After an uptrend changes and reaches its peak, and a downtrend is established with inertia and is difficult to reverse in the medium term, they sell.
Comparison of the Two Trading Approaches#
Since asset prices cannot be predicted, many investors believe that the right-side system is superior to the left-side system. This is a misconception based mainly on Newton's laws, where moving objects have inertia. It is believed that the prices of assets in an uptrend or downtrend will maintain their original trend. For example, the right-side system gives a buy signal during an uptrend and a sell signal during a downtrend based on this theory, assuming that the probability of further uptrend is high for rising assets and the probability of further downtrend is high for falling assets. However, Newton's laws apply to ideal states, and in the real material world, very few movements follow this regular pattern, and many movements exhibit irregular patterns.
Generally speaking, left-side trading is more suitable for large institutional operations because it requires a long operation time and accurate judgment of future trends. It cannot be achieved without a certain level of expertise, which is exactly what institutions are good at. Right-side trading is more suitable for traders with average capital who engage in short-term trading. They wait for the trend to prove its strength before making a move, increasing the probability of success. There is no superiority or inferiority between left-side trading and right-side trading. They are just different approaches for different operators. For institutional operators with large capital, left-side trading is the only option. For traders with average capital, right-side trading is more reasonable.
How to Determine the Two Trading Approaches?#
1. Direction
If the trading direction is consistent with the trend direction, it is right-side trading. If it is inconsistent, it is left-side trading.
2. Timeframe
Whether a trade is left-side or right-side trading only depends on the trend direction of the current timeframe and the adjacent larger timeframe. It is not related to the trends of other timeframes. For example, if the weekly chart shows a downtrend and the daily chart shows an uptrend, going long on the 30-minute chart is still considered following the trend or right-side trading. If going long on the daily chart, it is considered counter-trend or left-side trading.
3. Stage of the Trend
A trend is generally divided into three stages: early, middle, and late. Strictly speaking, left-side trading can only occur in the late stage of a downtrend. In other words, only counter-trend trades at the end of a downtrend are considered left-side trading, while counter-trend trades in the early and middle stages are considered self-destructive trades. Right-side trading can only occur in the early and middle stages of a trend. When the trend reaches its late stage, the direction of the trade is consistent with the trend, but it cannot be considered right-side trading. The purpose of trading is to make a profit, and trades with low profitability are not good trades.
From the above discussion, we can see that left-side trading and right-side trading complement each other. Without the right-side trading approach, the security of funds cannot be fully guaranteed, and the funds cannot be effectively increased. When the size of the funds reaches a certain level, the importance of left-side trading gradually becomes apparent. Without an accurate prediction of future events, one will end up like those institutions and individuals who have been eliminated by the market.