In the exhilarating world of proprietary trading, where high risk and high rewards go hand in hand, the choice of the right trading strategy is as paramount as it gets. This is because the employment of the appropriate strategy not only plays a crucial role in reducing potential losses but also in maximizing profits. Proprietary traders, often referred to as "prop traders," are a distinct breed of traders who operate with the prop firm's capital, aiming to generate substantial returns.
To navigate this dynamic landscape successfully, traders must carefully select and master specific strategies tailored to their risk tolerance, market conditions, and individual expertise. To help aspiring prop traders discern which strategy best suits them, here’s a lowdown of the most widely used and effective prop trading strategies.
News Trading
Among the myriad strategies at the disposal of prop traders, news trading stands out as a popular choice, especially in today's volatile market environment. The strategy hinges on capitalizing on the sharp, short-term price fluctuations that frequently follow significant news events. For instance, traders closely monitor public company quarterly reports and anticipate how these reports may impact the company's stock price. Armed with this insight, they enter either short or long positions in anticipation of the market's reaction. These positions are typically held for just minutes or hours, making news trading a high-risk, high-reward endeavor. To mitigate the inherent uncertainties, traders employ stringent risk management techniques such as precise position sizing and tight stop-loss orders.
Prop Firm allowing Trading the News
Here we made a selection of the most popular Prop Firm allowing Trading the News that we chose based on reputation, trustworthiness and also allowance to trade on News and the availability of a comprehensive News section
| Prop Firm | Trade News |
|---|---|
| FundedNext | (Evaluation & Stellar) |
| Funding Pips | |
| FTMO | (Swing accounts) |
| Bullwaves Prime | (allowed during the evaluation phase) |
| Toptier Trader | |
| UltraCap Trading | (Standard Challenge and Rapid Challenge) |
| OspreyFX | |
| Blue Guardian | |
| Funded Trading Plus | |
| City Traders Imperium | |
| E8 Markets | |
| Lux Trading Firm | |
| Goat Funded Trader |
Breakout Trading
The breakout strategy is another favored choice among prop traders. It aims to capitalize on sudden, sharp price movements that break through established resistance or support levels. To identify potential breakouts, traders employ technical analysis and algorithmic tools. When a breakout occurs, they swiftly enter a position with the intention of riding the momentum until the asset reaches a predefined target price. Due to the possibility of false breakouts, successful traders often set strict stop-loss orders or adjust positions to minimize potential losses. This versatile strategy can be applied to various asset classes, including stocks, currencies, commodities, and futures, rendering it a favorite for many prop traders.
Scalping
Scalping, on the other hand, is one of the most demanding prop trading strategies. It involves trading on a minute-by-minute basis, with traders executing multiple trades throughout the trading day to profit from minor, real-time asset price movements. Scalpers avoid holding positions overnight and must constantly assess each asset's performance to enter and exit positions quickly, as speed is of the essence here. To achieve success, they rely on a combination of technical analysis and various indicators, such as Bollinger Bands, moving averages, and the Moving Average Convergence/Divergence (MACD). Additionally, scalpers often utilize order flow data and Level II quotes to gauge market depth. Given the high risk associated with this strategy, traders deploy tighter stop-loss orders and carefully manage position sizing to minimize potential losses.
Prop Firm with Best Trading Conditions for Scalping
Some firms might have restrictions on certain high-risk strategies like scalping. Our Experts have compiled a list of today's Best Prop Firms for Scalpers!
| Prop Firm | Prop firms for Scalping Trading |
|---|---|
| FunderPro | |
| Bullwaves Prime | |
| OspreyFX |
Position Trading
In contrast to the fast pace of scalping, the position trading strategy takes a longer-term perspective on proprietary trading. It shares similarities with trend following but distinguishes itself due to the prolonged duration of trades. Position traders invest in trends that they believe will persist over months or even years. This approach requires a deeper understanding of market trends, macroeconomic indicators, and industry-specific developments. Unlike day traders, position traders make fewer trades per year, prioritizing long-term market movements over short-term fluctuations. They employ both technical and fundamental analysis and rely on strict risk management methods and asset allocation rules to mitigate the potential for substantial losses.
Trend Following
Another strategy that prop traders employ is trend following. This approach involves identifying and analyzing market trends before entering short or long positions. The key when employing this trading strategy is to establish clear entry and exit points, which can be achieved using various technical analysis tools and automated algorithmic trading software. While trend following works best in historically stable markets with well-defined trends, it becomes considerably riskier in choppy markets characterized by shorter trends and unclear patterns. As a result, traders practicing this strategy need to exercise extreme caution and implement strict risk management measures.
Swing Trading
Swing trading strikes a balance between the short-term focus of day trading and the long-term horizon of position trading. Traders practicing this strategy hold positions for days or weeks, riding the positive trend for as long as it lasts. Technical analysis plays a central role in swing trading, with some traders incorporating fundamental analysis to analyze price patterns and market trends. The primary goal of swing traders is to capture a fraction of an anticipated price move, exiting positions before an expected reversal. Given that profit margins are typically smaller compared to other prop trading strategies, it is essential to keep potential losses in check. To achieve this, swing traders often employ a 3% stop loss to safeguard their long-term success.
Prop Firm with Best Trading Conditions for Swing Traders
As we have seen in our previously posted Guide to the Prop Firm for Swing Traders rules and limitations imposed by prop firms can make swing trading hard or even impossible. Here we will list the most popular firms with rules that enable swing traders to obtain or keep a funded trading account.
| Prop Firm | Swing Trading Friendly |
|---|---|
| FunderPro | (Hold positions over the weekend and during news events. No Consistency Rule in Phase 2.) |
| FTMO | (FTMO is a well-known and respected prop firm, particularly favored by new traders. While swing traders may find some restrictions, they can choose the Swing account type to avoid them. Swing accounts allow overnight positions, weekend trading, and news trading without limitations. The only drawback is lower leverage (1:30), still decent. The evaluation process is relatively short, which may be a downside for swing traders with longer-term strategies. However, once evaluated, working with FTMO poses no problems.) |
| the5ers | (The 5%ers is a respected prop firm ideal for swing traders. It offers unrestricted overnight, weekend, and news trading. Their evaluation plan allows up to 12 months to complete and provides instant funding options. Time limits exist for reaching profit objectives in the initial program level (60 days for Aggressive, 180 days for low-risk traders), but subsequent levels have no time constraints in their instant funding program.) |
| UltraCap Trading | (With a Swing Account, the leverage is 1:60, and traders can hold trades over the weekend.) |
| City Traders Imperium | (City Traders Imperium is a promising prop firm for swing traders. It offers minimal limitations on trading and provides a generous time limit to reach profit targets during the evaluation period for the Standard and Classic programs. However, a significant drawback is the requirement to close positions before high-impact news, which restricts the duration of swing trades. The Daily Trading program lacks this limitation but is more suited for daily traders. Nevertheless, if a swing trader successfully passes the rigorous evaluation process, they will enjoy greater trading freedom with fewer limitations.) |
| Lux Trading Firm | (Lux Trading Firm provides very appealing benefits for swing traders with features like the lack of limitations on overnight, weekend, and news trading, it offers no time limit for the evaluation stage. However, there are a few drawbacks to consider like the payout ratio (comparing with the scaling plans of other prop firms) and the requirement to use a similar lot size and risk percent per trade during the evaluation stages. ) |
Becoming a Funded Trader: Key Steps for Success
If you are a prop trader, then choosing the appropriate proprietary trading firm is paramount for successfully practicing your preferred trading strategies. These firms serve as a bridge between individual traders and the financial markets, offering access to capital, technology, and resources. Importantly, different firms often specialize in various trading strategies, making it crucial to match your approach with the right firm. For instance, some proprietary trading firms excel in high-frequency trading, while others focus on options or equities trading. The choice hinges on the compatibility between your trading style and the firm's expertise and infrastructure. Additionally, considerations such as risk tolerance, leverage, and trading costs play a pivotal role in the selection process. Picking the right prop trading firm can significantly impact your ability to implement and refine your strategies effectively, ensuring a more fruitful and sustainable trading career.
In Conclusion: Regardless of whether you opt for the dynamic, fast-paced environment of day trading or prefer a more patient, long-term approach, the key to success in proprietary trading lies in selecting the right strategy and effectively managing risk. This complex and ever-evolving landscape offers a plethora of opportunities, but it also demands a thorough understanding of the chosen strategy and the discipline to adhere to risk management principles. As you embark on your journey as a prop trader, remember that success is the result of a carefully crafted approach tailored to your unique circumstances, market conditions, and aspirations, as well as finding the most suitable and appropriate prop firm through which to practice and enhance your strategies and skills.
