SignalHub Quantitative Think Tank Center FAQs : Helping Traders Find Their Edge
Stock prices fluctuate, forming peaks ("tops") and valleys ("bottoms"). These movements create opportunities for two distinct trading approaches: left-side and right-side trading.
What is Left-Side and Right-Side Trading?
Left-side trading involves taking action before a price reversal - selling before a peak or buying before a bottom.
Right-side trading follows the trend, selling as prices decline from a peak or buying as they rebound from a bottom.
In a bear market, left-side traders buy when prices are still falling, anticipating a future rise, while right-side traders wait for confirmation of an uptrend before entering. The reverse applies in a bull market.
Which Strategy is More Effective?
Many assume right-side trading is safer since it follows the trend. However, markets are unpredictable, and relying on clear trends can be misleading.
Left-side trading offers higher potential gains but comes with increased risk. Since market bottoms and tops are uncertain, traders may buy too early or sell too soon.
Right-side trading is generally more conservative, reducing the chances of major losses. It helps traders avoid mistimed entries and exits, making it the preferred approach for institutional investors managing risk.
Which Strategy Suits You?
Your choice depends on your risk tolerance and trading style:
Left-side trading is ideal for mid-to-long-term investors willing to take calculated risks for potentially higher rewards.
Right-side trading suits short-term traders who prioritize capital preservation and trend confirmation.
Both strategies have their place in the market, and the key is to align your approach with your financial goals and risk appetite.
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