Today we will talk about the advantages and disadvantages of the two entry methods: left-side trading and right-side trading, from the perspective of mass traders and professional traders.
Before we start the discussion, let's first make sure that the scope of today's topic is the trading level, which is to earn volatility and generate price differences through the execution system.
Let’s take bearishness as an example to understand what is left-side trading and what is right-side trading.
From Figure 1, we can see intuitively that the left-side transaction is to focus on the short position during the rising market; the right-side transaction is to focus on the short position after confirming the falling market.
So is it better to short when the market is rising or short when the market is falling?
Now that we know what left-side trading and right-side trading are, let us analyze their advantages and disadvantages from the perspectives of ordinary traders and professional traders respectively.
Let’s start from the perspective of ordinary traders and the general public.
Most traders believe that the price for trading on the left is better than that for trading on the right. Why?
Because the left side can get a better price advantage than the right side.
Taking short selling as an example, the left side trading can intervene in the short market one step earlier, as shown in point A in Figure 2; for the right side trading, if it is a breakout trader, they will choose to intervene at point E. Obviously, the price at point E is lower than that at point A, so the left side is better than the right side in terms of price.
However, it is difficult to set a stop loss for left-side trading. The reason for this is that when the market is rising, it is impossible to accurately determine when it will reach its highest point. This will result in the following three situations:
No. 1 was broken by the market, and the stop loss effect was not achieved, and the risk could not be effectively controlled to protect profits.
The stop loss space of No. 3 is too large, which increases the cost and psychological pressure of trading and reduces trading opportunities
Assumption No. 2 is a more suitable stop loss position, because the market is uncertain, it is generally difficult to find
As for right-side trading, in the public's perception, it has shortcomings such as chasing up and selling down, and low prices. However, its advantage is that it is easier to determine the stop loss position.
So for professional traders, from what perspective will they analyze the advantages and disadvantages of left-side trading and right-side trading?
Let's look at the left side first. Go short when the market is rising. As shown in the figure below, there is a good entry price, assuming it is 70
In order to avoid the market breaking the stop loss, the stop loss is placed at a farther position, such as 130, to ensure that the profit can be made after the market falls. If the take profit point is set to 10, then the space ratio of take profit and stop loss is 60:60=1:1, which is equivalent to using 60 points to earn 60 points.
A right-side trader will intervene only after the market stabilizes, when the price will be relatively low. If he is a right-side trader, the stop loss point can be set at the price before the market pulls back (position 80 in the figure).
The key position of the market is 50. After breaking through, he shorted at 50, set stop loss at 80 and take profit at 10. The profit and loss ratio is 40:30=4:3. Here, he uses 30 points of risk to exchange for 40 points of profit.
Judging from the points obtained, the points obtained from the right transaction are less than those from the left transaction.
But if we look at it from the perspective of "profit and loss ratio thinking", the value of the right side transaction is greater than the left side transaction
Assuming that the single risk is 300 yuan, for the left side transaction, it means investing 300 yuan and earning 300 yuan; for the right side transaction, it means investing 300 yuan and finally earning 400 yuan.
In this case, when professional traders make trades, they pay more attention to the risk-reward ratio than the price and points.
This also reminds us that when looking at a problem, we should not only look at the surface, but also think about the essence behind the phenomenon.
at last
At the trading level, this sharing discussed the advantages and disadvantages of left-side trading and right-side trading from the perspectives of the general public and professional traders.
The public believes that left-side trading has more advantages in terms of price, but it is difficult to stop loss; while right-side trading has advantages in stopping loss, but there are problems such as low prices and chasing highs and selling lows.
When professional traders look at these two methods, they analyze them together with price and profit and loss ratio, and combine relative indicators with absolute indicators.
In other words, the pros and cons of these two entry methods cannot be judged from only one aspect or surface information, such as a high price is good and a low price is bad. This is a rigid black-and-white thinking. In fact, they should be based on the degree of integration with their own trading system, give play to their own advantages, and maximize profits as much as possible.
There is no absolutely good or bad trading method, only more suitable methods. Pay attention to [Paul High and Low Quantification] to find a trading method that suits you better!