Highlights ①. Gate's "Basic Futures Courses" course introduces various methods of technical analysis that are commonly employed in futures trading. These courses aim to help traders establish a comprehensive framework for technical analysis. Covered topics include the basics of Candlestick charts, technical patterns, moving averages, trend lines, and the application of technical indicators. ②. After the introduction of trend trading in the last piece, this piece will introduce two relevant strategies: left-hand transactions and right-hand transactions. The article will compare the differences and similarities of these two strategies, as well as the trading scenarios that they suit.
1. What are left-hand transactions and right-hand transactions? ①. What are left-hand transactions? Left-hand transaction is a technique used by traders who seek out indications that a current price trend is nearing its end, aiming to take positions that are opposite to the prevailing direction to capitalize on the impending shift. For instance, if traders anticipate that a downward trend is approaching its lowest point, they would initiate a buy order in expectation of an upward reversal. Conversely, if they believe that a bull market is close to peaking, despite the price still climbing, they would begin to sell off their assets in anticipation of a forthcoming downturn. When analyzing candlestick charts, the entry point for left-hand transactions would typically be before the lowest price point is reached, that is, to the left of the bottom in the chart's timeline. Similarly, the entry point for a sell would be before the highest price point is achieved, to the left of the peak on the chart.
In left-hand transaction, traders open buy positions even as prices are falling because they identify signals that suggest a strong probability of an imminent upward reversal. Similarly, when selling in an uptrend, left-hand traders do so because they perceive a high chance that the bull market is about to reach its peak and reverse. However, left-hand transactions can be risky and may lead to losses in actual practice. Unfortunate scenarios include traders taking substantial contrarian buy positions as a bull market is ending, only to find themselves trapped in the subsequent downturn. When the reversal does occur, these traders, having endured long periods of passive holding and eager to recoup losses, might switch to a strategy of buying during price rises and selling during declines. On the flip side, during the middle of a bull market, they might become overly cautious and hold short positions in anticipation of a peak that seems imminent on the chart. For many technical traders, significant losses often happen when they engage in left-hand transactions, as timing the market precisely is challenging.
Simply put, left-hand transactions are when you try to guess when the current price trend will change direction and trade based on that guess. On the other hand, right-hand transactions are when you trade in the same direction as the current trend.
②. What are right-hand transactions? Right-hand transactions are actually a strategy where you make trades in the direction the market is already moving. You buy assets when prices are trending upwards and sell when they're going down, aiming to enter and exit the market at points that follow the established trend, rather than trying to predict the exact bottom or top.
2. Comparisons between the two strategies - Differences ①. Left-hand transactions are made based upon a guessed bottom or top, while right-hand transactions are to trade according to the established direction of the market.
②. Left-hand transaction is a strategy developed based on reverse thinking mode, while right-hand transactions involve using forward thinking mode.
③. Left-hand traders take positions opposite to the current market trend, entering or exiting with the expectation that the trend will soon reverse. However, right-hand traders enter the market when they believe that the established trend will continue for a while.
④. Left-hand traders buy assets when the price is about to bottom-up and sell at the point when the price peak is nearly achieved. The logic behind the strategy is to buy during decline and sell during increase. Right-hand transactions involve increasing positions in an upward trend and getting rid of holdings when the price declines. It means to trade by following the trend: you buy during an increase and sell during a decline.
⑤. Left-hand trading is more fit for large investments, while right-hand transactions are more suitable for small and medium transactions.
⑥. The most frequent mistake left-hand traders make is purchasing assets during a bear market and not witnessing the reversal they expected, or selling assets during a bull market that continues longer than anticipated. Conversely, the typical error for right-hand traders is buying at what they think is the start of an upswing during a bear market, which is just a temporary rally, or selling during a minor dip in a bull market, mistaking it for the start of a downturn when it's just a consolidation phase.
⑦. Left-hand trading typically involves higher risks and potentially greater returns than right-hand strategies.
⑧. Left-hand traders aim to enter trades at what they perceive to be the top or bottom of a price movement, while right-hand traders typically make their moves after a top or bottom has been established and the new trend is underway.
- Similarities ①. Essentially, both approaches seek to generate returns by aligning with market trends. ②. Both strategies employ similar technical analysis techniques to evaluate market conditions, whether it's analyzing the present situation or predicting future movements. The primary distinction between them is the timing of when to enter and exit the market.
- Misunderstandings about left-hand transaction ①. Left-hand traders open positions against the market trend. Although left-hand traders take positions contrary to the prevailing trend, they initiate trades with the anticipation of an imminent market turnaround. By predicting that the market will change at a specific moment, they respond proactively, positioning themselves ahead of the anticipated shift.
②. Left-hand transaction is a value-based investment. Value-based investing is a strategy rooted in fundamental analysis. The core tactic involves accumulating more positions as prices decline, with the scale of investment increasing in tandem with the magnitude of the downturn. However, left-hand transaction relies on technical analysis to assess market dynamics. Should the market not move according to their expectations, left-hand traders must decisively exit their positions to minimize losses.
3. Application of the two strategies ①. Right-hand traders must exercise caution when considering entry points during rebounds in a bear market. Frequently, such traders may end up incurring losses by purchasing at high prices and selling at lows, despite what may appear to be a rally on the monthly chart. ②. These two strategies should not be combined in use. ③. Other trend analysis methods should be used as a supplement to make a better judgment.
4. Trading cycle and position management ①. The role of position management: A. Reduce losses and maximize profits; B. Ensure the implementation of entry and exit rules ; C. Avoid the influence of traders' irrational emotions, and prevent expansion of losses. When using the two strategies, the basic position management rules should be expanding positions in the bull market, and shorting positions as the price drops. Specifically: A. During an established long-term upward trend, when the currency price breaks above the short-term or mid-term downward trend line, it is a signal to buy and increase positions; if the currency price falls below the short-term or mid-term upward trend line, it is a signal to reduce positions; if the currency price keeps moving above the long-term upward trend line for a long time, it is a signal to maintain your current holdings. B. When the currency price falls below the long-term upward trend line, it is a signal to exit all positions. If the currency price keeps running below the long-term downward trend line for a long time, it is a signal for shorting your positions. C. If the currency price breaks above the long-term downward trend line, then it reverses to drop for a while but turns abound to rally again before falling below the mid-term uptrend line. It is a signal to buy assets; if it falls below the mid-term uptrend line, it is a signal to exit all positions.
Certainly, it's unwise to depend solely on a single method of technical analysis for trading. To achieve consistent returns and effectively mitigate risks, it's advisable to integrate multiple trend technical analysis techniques for wiser decision-making.
5. Summary
Left-hand transactions and right-hand tradings are two distinct trading strategies rooted in technical analysis methods. They involve determining the entry and exit points by assessing the current trend or predicting possible turnaround that will kick in. Beginners should master the methods by using them in trading, but should not solely rely upon them to decide their moves. Other technical analysis methods are advised to be used together to make a wiser decision.
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Disclaimer This article is for informational purposes only and does not constitute investment advice. Gate is not responsible for any investment decisions you make. Content related to technical analysis, market assessments, trading skills, and traders' insights should not be considered a basis for investment. Investing carries potential risks and uncertainties. This article offers no guarantees or assurances of returns on any type of investment.
