Is your trading style fundamentally incompatible with your personality?
Have you noticed that the most painful truth in the investment world is often not a lack of technical skill, but a fundamental mismatch between one’s personality and their chosen strategy?
Many retail investors hold idle cash ideally suited for long-term positioning, yet possess a "short-term mindset" that craves immediate feedback and is highly sensitive to market fluctuations.
In fact, the personalities of at least half of all retail investors are entirely unsuited for left-side trading.
Why? Because left-side trading is essentially a form of torture that goes against human nature. It requires you to be greedy when others are fearful and to remain steadfast while your account sustains continuous floating losses. This demands not intelligence, but certain personality traits bordering on paranoia.
If you are impatient, sensitive, and crave immediate feedback, yet force yourself to engage in left-side trading, it is akin to walking through a powder magazine with a torch—you will either be blown up or scared to death by your own anxiety.
The same applies to right-side trading. Some investors prefer to wait until a trend is established before buying, yet they are inherently indecisive when opportunities arise. As a result, they either miss the opportunity entirely or enter at an excessively high price.
Do not rush to refute this; first, review the following personality profiles of left-side and right-side traders.
The "Lone Warrior" of Left-Side Trading
Left-side trading involves buying during a decline. The common rationale is the belief that the current level is the absolute bottom, or at least very close to it. However, true left-side traders are not concerned with identifying the exact bottom; they buy whenever they perceive the current price to offer investment value, which is the essence of value investing.
Therefore, contrarian investing (left-side trading) appears to onlookers as akin to "catching a falling knife," fraught with extreme peril. However, from the perspective of truly rational contrarian investors, it is simply a case of "being greedy when others are fearful."
Thus, the fundamental character traits of contrarian investors are twofold: first, "contrarianism," and second, "patience."
Contrarian investors are typically natural-born "non-conformists." Since individuals generally seek social validation and avoid isolation, they tend to follow the herd; thus, trend-following aligns with human nature. When public opinion is highly uniform, non-conformists face not only the market risk of being trapped in losing positions but also prolonged social and psychological isolation. Contrarian investors must become accustomed to solitude and to various doubts from friends and clients, trusting that time will provide answers rather than attempting to prove their innocence.
Beyond "catching falling knives," contrarian investing also involves "buying where there is no interest." In this approach, the greatest enemy is not the market, but time. After purchasing, stock prices may remain stagnant for six months or even a year. Consequently, many contrarian investors possess a high degree of "insensitivity."
"Insensitivity," or the power of dullness, refers to a reduced sensitivity to external information. It prevents individuals from remaining in a state of constant nervous tension and helps filter out noise.
Insensitivity is an innate personality trait and life attitude. Individuals with strong insensitivity often adopt a "minimalist" approach to life, believing that simpler systems are less prone to error. They simplify their investment methods into a few core beliefs to achieve their expected returns.
Some say that contrarian investing is a battlefield for experts but a meat grinder for ordinary people. If you lack the composure to remain unperturbed even when Mount Tai collapses before you, yet insist on attempting to buy at the bottom, the likely outcome is not a successful bottom-fishing operation, but rather burying yourself.
Reading this, you might feel that contrarian investing is too difficult. Does this mean that momentum investing (right-side trading) is easier?
In reality, no one seeks hardship for its own sake, nor does anyone deliberately choose contrarian or momentum investing. Everyone hopes to buy at the absolute bottom. Contrarian investing may indeed allow one to buy at the lowest point, whereas momentum investing inherently forfeits the opportunity to buy at the absolute bottom.
Realists in momentum investing
Identifying the market bottom is only possible in hindsight; often, it is merely a fleeting moment. Since no one can predict the true bottom in advance, right-side trading operates on a key premise: forgo buying at the absolute lowest point. The goal is not to secure the cheapest entry price, but to maximize capital efficiency during the holding period.
High capital efficiency means the asset appreciates shortly after purchase. A left-side trader might buy at 10 yuan, endure a year of stagnation, and see the price rise to 15 yuan the following year, achieving a 50% return over two years. In contrast, a right-side trader waits until the price reaches 12 yuan before entering, achieving a 25% return in one year. The latter approach offers superior annualized returns and capital efficiency, along with a better holding experience.
However, if you equate right-side trading with "chasing rallies and cutting losses," you are mistaken. While right-side trading spares you from enduring prolonged drawdowns, it requires adherence to trend-following principles, many of which are counterintuitive and go against human nature.
The second characteristic of right-side traders is also "patience," but it differs fundamentally from the patience exhibited by left-side traders.
Right-side traders do not simply buy whatever is rising. Instead, they identify promising targets early on and monitor them in their watchlists, only executing purchases once a breakout is confirmed. If the patience of left-side traders resembles steadfast perseverance ("holding fast to the green mountain"), then the patience of right-side traders is akin to strategic restraint ("still as a maiden, swift as a escaping rabbit").
Left-side trading emphasizes endurance, while right-side trading emphasizes restraint.
This constitutes the second trait of right-side traders: they are "free-rider" realists. They distrust forecasts and rely solely on facts. Regardless of how favorable their fundamental research on a company may be, if the stock price does not rise, they consider the opportunity void.
They lack the contrarian sentiment often found among left-side traders. Their primary objective is certainty; they require trend confirmation to eliminate uncertainty, even if achieving this certainty entails higher costs.
In their daily lives, they are often result-oriented, disregarding narratives and presentation decks, and focusing exclusively on data.
The third characteristic of right-side traders is "decisiveness."
Right-side trading is most prone to hesitation because it involves buying at higher prices, which can trigger a fear of heights. However, hesitation is also the greatest enemy of right-side trading. Since entries are made at elevated levels, costs are higher and profit margins are narrower. Once a trend establishes itself, stock prices can rise rapidly; even brief hesitation can lead to further price increases, thereby compressing profit potential even more.
Therefore, buy decisions in right-side trading are often mechanical, based on extremely simple and clear signals—such as buying upon breaking through a resistance level or on significant volume spikes—precisely to eliminate any room for hesitation.
The fourth characteristic of right-side traders is the "courage to abandon positions."
Stock prices largely follow a random walk, frequently generating "false signals." In such cases, prices may drop shortly after purchase, trading volume shrinks, and the stock falls back into bottom-range consolidation.
A genuine right-side trader prioritizes capital efficiency. In such scenarios, they will sell without hesitation, even if they remain bullish on the asset. Continuing to hold would effectively turn the strategy into "left-side trading," contradicting their investment philosophy.
It should be noted that the success rate of right-side trading is still built on a solid foundation of research, no different from left-side trading. Otherwise, it merely becomes "chasing rallies and cutting losses."
Some may ask: If I always buy in tranches, is that considered left-side or right-side trading?
Is tranche buying classified as left-side or right-side trading?
Whether a strategy is left-side or right-side is determined not by the actual entry price, but by the specific buying plan.
Many people equate left-side trading with value investing and right-side trading with trend investing. Based on the above analysis, you will find this understanding overly simplistic, as it merely exaggerates certain characteristics.
Value investing is fully compatible with right-side trading, where investors sacrifice a portion of potential profits in exchange for higher certainty in holding positions. While Buffett is generally considered a "left-side" investor, he only began buying Apple shares many years after its performance surge and continued to increase his position. In retrospect, this constitutes right-side entry.
Left-side buying and right-side buying are two distinct trading methodologies. Whether one adopts value investing or trend investing is akin to choosing a weapon that feels comfortable in hand; it depends more on alignment with the investor's personality.
It is evident that different phased trading plans can incorporate both left-side and right-side strategies.
If you intend to allocate only a small portion of your capital to left-side buying, with the majority of your position established on the right side, the overall strategy remains classified as right-side trading. In fact, this is the most common approach among institutional investors. The initial left-side portion is referred to as an "observation position" or "core position," designed to maintain focus and tracking of the underlying asset, thereby enhancing responsiveness in right-side trading.
With this phased buying approach, even if an error is identified, one does not liquidate the entire position but retains some holdings to await the next genuine opportunity.
This trading method continues to emphasize the patience required for waiting and the decisiveness needed for execution, thus belonging to the category of right-side trading.
If you divide your capital into several tranches and begin buying from the left side, adhering to a schedule based on time or price targets, this constitutes left-side trading.
In such phased buying strategies, there is a possibility that later tranches may effectively be purchased on the right side. However, the essence of this plan is based on value rather than market feedback, involving financial planning primarily for cost control. It still demands personality traits aligned with left-side trading, namely "contrarian thinking" and "patience."
To summarize briefly, left-side trading is a solitary game of "being greedy when others are fearful," which severely tests contrarian thinking and endurance; whereas right-side trading is a realist pursuit of efficiency, emphasizing decisiveness in forsaking the absolute bottom and following the trend.
Personality is destiny. Investment is a cultivation of character. By finding a trading style that resonates with your personality, you will no longer perceive investing as an ordeal. When you cease fighting against yourself, profits will follow naturally.
Edited by Joryn