Left-side trading refers to an investment approach where the investor buys during a downtrend or sells during an uptrend, positioning themselves against the prevailing market sentiment. It is often associated with contrarian investing, where the investor believes that the current trend is overextended and due for a reversal.
A classic example of left-side trading is value investing, where investors look for companies trading below their intrinsic value due to temporary setbacks, broad market declines, or negative sentiment. This style requires patience and conviction, as the market may continue to move against the position before eventually correcting. Risk management is essential, as betting against the trend can lead to losses if the trend persists longer than expected.
In contrast, right-side trading involves following the dominant trend. Investors buy during rallies and sell during downtrends, positioning themselves in the direction of the market. This approach is often preferred by trend-following traders, who believe that momentum is likely to persist.
Right-side traders are often more reactive than left-side traders. They wait for confirmation of a trend before entering a position, ensuring they are aligned with the current market sentiment. This style can be less stressful for investors, as they are moving with the market rather than fighting against it.
The decision between left-side and right-side trading depends on your investment philosophy, risk tolerance, and market outlook.
For value-oriented investors, left-side trading may be appealing, as it allows them to capitalize on market inefficiencies and buy quality stocks at discounted prices. However, this approach requires patience and a strong stomach for volatility, as timing a reversal is notoriously difficult.
For momentum or technical traders, right-side trading may be more suitable. By following established trends, they can ride the wave of market sentiment, aiming for consistent returns without the need to time reversals. This method works best in markets with clear, strong trends, but can be less effective in choppy conditions.
Both left-side and right-side trading strategies have their merits, and each can be profitable under the right circumstances. Left-side trading offers the potential for larger gains by going against the trend and capitalizing on market overreactions, but it carries higher risk. Right-side trading, while more conservative, allows traders to follow the trend, reducing risk but potentially capping returns.
Investors should carefully assess their goals, risk appetite, and market conditions before choosing which side of the trade to follow. In some cases, combining elements of both strategies—buying dips in uptrends or taking profits on rallies—may offer the best of both worlds.
@TigerWire
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.
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let me add: Sell when it is riped for partial harvest or its reach a status quo, or the business becoming complacent or a dinosaur. This factor holds me back from investing in some famous brands I like. Never fall in love with a business (Value Investors principle).