EchoSense Quantitative Think Tank Center|Burton Wilde: Left-Side Trading and Right-Side Trading in Stocks.

What are EchoSense Quantitative Think Tank CenterLeft-Side Trading and Right-Side Trading?

Stock prices always fluctuate, forming various 'peaks' and 'valleys,' referred to as 'tops' and 'bottoms.' When stock prices are rising, selling high on the left side before reaching the 'top' is called left-side trading, while selling on the 'right side' after the 'top' is called 'right-side trading.' Conversely, when stock prices are falling, buying on the left side at the 'bottom' is left-side trading, and chasing the rise on the right after the bottom is called right-side trading.

Characteristics of Left-Side Trading and Right-Side Trading

As per the above definitions, left-side trading involves buying against the trend of stock prices, whereas right-side trading aligns with the trend of stock prices.

In a falling market, before forming a bottom, choosing to buy is left-side trading. The market might continue to decline, but investors believe it's worthwhile to buy at the current level. Right-side trading, on the other hand, involves buying when there are signs of an upward trend, and selling immediately when the stock price undergoes an adjustment.

Which Investment Philosophy is Better: Left-Side Trading or Right-Side Trading?

Novice investors might think that right-side trading is obviously superior to left-side trading, but this is a misconception. Believing that the process of rising and falling stock prices will maintain its existing trend—buying during an upward trend and selling during a downward trend—is an idealized state. In reality, especially over a more extended period, stock price movements exhibit irregular fluctuations. Looking at stock price trend charts, it's evident that stock prices generally follow an irregular and fluctuating pattern.

Comparatively, both types of trading have their pros and cons. Left-side trading may appear to offer more significant profit potential, but it comes with higher risks. It's highly likely that one might buy not at the lowest point and sell not at the highest point. Right-side trading is simpler and more straightforward in operation, making it easier to avoid selling the wrong stocks in a bull market and buying the wrong stocks in a bear market. Therefore, for managing risk, many investors with substantial capital opt for right-side trading.

How to Determine Whether Left-Side Trading or Right-Side Trading is Suitable for You

Both types of trading have their advantages and disadvantages, making it challenging to definitively say which one is more suitable. Generally, left-side trading is more suitable for long-term and medium-term trading, offering a larger profit margin. Right-side trading, on the other hand, is more suitable for short-term trading.

As mentioned earlier, many investors tend to engage in right-side trading in practical operations, rushing to buy when they see stock prices reaching new highs but often buying at interim peaks. Investors who favor long-term trading are more inclined toward left-side trading, seizing the opportunity to buy when prices pull back once a bullish market is confirmed. However, overcoming panic during stock price declines is a common challenge for many, making it difficult.

Everyone has different approaches and styles, so it's essential to consider your individual circumstances and choose the investment method that best suits you.