“The trend is your friend”. This famous phrase is in almost all trading books. But how important is it to trade in the direction of the trend? This is the question I asked myself. Before answering this question, we will discuss some generalities. Whereof is usually composed a trading strategy:
- An entry that gives us an advantage (edge) compared to a random input. The input can be decomposed into elements such as setup, filters, signal, execution, etc …
- Exit with loss (stop loss) or profit (take profit).
- Management of risk (money management) that allows us to maximize profit while minimizing risk.