Imagine you are driving to the airport to catch a flight. You know the way – more or less – so you decide not to use Google Maps or any GPS navigation. Why use a map when you can use your gut and memory? For the first part it is fine – and more fun not depending on anything else to get you there. You ace the turns and feel reassured by each familiar landmark you pass en route. Then it starts to go wrong. You get a funny feeling that you are way off course... you have missed the exit from the highway and now you could miss your flight! There is a lot riding on that plane – not just the price of your ticket, but the money and time that you have invested in the business trip and from the deals that you could sign thanks to the scheduled meetings.
This is trading without a strategy. Fun at first – and hey, maybe you’ll get it right some of the time and hit some winning trades as you navigate the market by instinct alone. This approach is unsustainable in the long term, however, and traders looking for long-term, sustained success will heighten their chances by developing – and sticking to – a decent strategy.
Hope is [a] bogus emotion that only costs you money.
When it comes to prop trading there are several strategies worth considering. In this article we will guide you through the maze of options, highlighting some of the most popular prop trading strategies before diving in and explaining several in step-by-step detail. Bear in mind, however, that there is no single “right” approach or “wins every time” strategy. The best strategy for you will depend on your unique trading personality, appetite for risk, and prop firm of choice. Exploring your options is an excellent way to get a grounding in the general approaches used and find the most promising prop trading strategy for you as a unique trader.
If you are already lost at “prop trading” then we need to take a quick segway back to the drawing board. Prop trading, or “proprietary trading” is a new and increasingly popular industry whereby undercapitalized traders are funded with company capital in return for shared profits. Funded traders can access up to millions in leverage to trade across diverse markets. The average profit-share is 80/20 with the trader keeping the majority of any winnings and the prop firm assuming the hit of any losses. In return for this arrangement, traders need to be able to demonstrate their ability to make consistent profits without taking on excessive risk.
Prop firms tend to evaluate traders using a test or series of internal evaluations or “Challenges.” During a typical prop firm challenge, traders will pay to access a company account (fees increase with account size) and then must trade within certain parameters. These will vary from firm to firm but include hitting regular profit targets, keeping losses below the preset maximum, and often doing all the above over a time limit. Prop firms vary in flexibility on strategies, the use of expert advisors, and tradeable assets, and increasingly many are removing the Challenge deadline.
Overall, prop trading is a fantastic funding opportunity for ambitious traders looking to fast-track their careers. The stakes are high, the competition is stiff, and strategies are the cornerstone for triumph. From astute algorithms to daring methodologies, prop traders must harness a unique set of tools to navigate the turbulent waters of trading. In this article, we will walk you into the realm of prop trading strategies, unveiling the hidden gems that separate the winners from the rest.
Research is King when it comes to trading, and you have possibly already done some reading around which brought you to this article. Strategy terms are often bandied about without explanation, so before we talk you through some of the tried-and-tested approaches used by prop traders, let us define these terms:
Swing traders capitalize on short to medium-term price movements within an established trend. The idea is to identify and trade the swings in price that occur between support and resistance levels. Trades are usually held for a few days to a few weeks. In our recent guide to the Best Prop Firm for Swing Traders we do provide a list of prop firms with rules that enable swing traders to obtain or keep a funded trading account.
News traders will open positions based on the impact of news and economic releases on the market. This strategy is based on the monitoring of economic data such as financial reports, economic headlines, job reports, etc., and traders will predict how these will influence market sentiment and prices and trade accordingly. Are you a News trader seeking a prop firm that understands and supports your trading style? Look no further! We have just released our comprehensive guide to the Best Prop Firm allowing news trading.
The clue is in the name! Traders using this strategy will follow the trends in the market and seek to buy when the price is trending upwards and sell when it is heading down. The idea behind trend following is to ride the trend wave for as long as possible.
An intense and high-pressure strategy, scalping is not for the faint-hearted. Traders will execute a high number of very short-term traders to profit from the small price movements. Scalpers enter and exit trades as fast as within seconds and might find themselves buying and selling hundreds of trades a day. Scalping relies on tight bid-ask spreads to generate profits.
Breakout traders will hone in on price levels at which the market breaks out of a consolidation or trading range. Traders using this strategy are trying to profit from the increased volatility and momentum that often follow a breakout: buying when the price breaks above resistance or selling when it breaks below support.
Now that we have covered the most popular strategies used in prop trading, let us dig a little deeper and explain some working strategies used by prop traders to win Challenges. The names of traders may be new, but these strategies are tried-and-tested winners in the prop trading realm.
Example One: Bob uses an ICT Strategy
After purchasing his first challenge, Bob decides to focus on the ICT (Inner Circle Trader) strategy. Bob explains there are four key components to this strategy. This is how Bob did it:
Overall, Bob’s ICT strategy is based on analyzing market structures, using specific indicators, implementing risk management techniques, and executing trades based on price sweeps and retests. Depending on the prop firm and trader in general, this could be a successful approach to passing a Challenge.
Example Two: Becca uses Position Sizing
As prop trading strategies go, Becca has chosen a reliable and effective approach. This strategy focuses on account risk management, consistent position sizing, and the use of a set risk-reward ratio. For truly long-term profitability and longevity with any prop firm, remember to keep backtesting and maintaining discipline.
Example Three: Bilal uses Trend Identification
Bilal’s strategy uses time frames to identify price shifts and profit-generating trends and apply the knowledge to buying and selling assets. In Bilal’s case, he uses currency pairs, but this strategy can be equally effective when applied to other instruments.
Bilal uses this strategy successfully to win Prop Challenges. This approach could be duplicated for other currency pairs or different markets altogether. Simply apply the prop trading strategy by following the same steps of identifying autoflow, marking auto blocks, waiting for price mitigation, looking for market structure shifts, and taking entries from the autoblocks.
A winning Forex Prop Trading strategy considers factors such as risk tolerance, market analysis, and entry, and exit points, and leverages the assets made available by the prop firm. As a funded trader, you must empower yourself through resources and market data to make informed trading decisions, identify favorable opportunities, and protect yourself from potential pitfalls.
Remember, whether you are driving to the airport or trading the markets, speed bumps are inevitable. But with a reliable and effective prop trading strategy in hand, you will have the power to adjust your course, whether this is grabbing the wheel just in time to avoid a loss or speeding up to take a profit. Trading with a strategy allows you to keep your eyes on the prize – whether this be the promised funding or your personal profit goals and career roadmap.
So, just as you would not head to an unknown airport without a map, approach trading with a well-defined strategy. Whether you choose one of the above approaches or formulate your own strategy for success, trading with discipline and forethought will unlock the many opportunities offered by prop firms and help you navigate the ever-changing landscape of the financial markets."
Scalping stands out as a dynamic trading strategy, revolving around seizing opportunities by swiftly buying or selling securities to capitalize on minor price ...
Prop or funded account trading is not a passing trend, but rather a sector that has known exponential growth and one that holds promising prospects for traders ...
Riding the Lightning: Unveiling the Thrills and Spills of High-Frequency Trading High-Frequency Trading (HFT), an intriguing and somewhat contentious trading ...
Introduction In late August, the Forex trading world was shaken when U.S. and Canadian regulators shut down My Forex Funds, a prominent and vastly popular Forex ...