There are thousands of different forex trading strategies out there. This can make it difficult to know which strategies would be suitable for your trading style.
Funded trading accounts usually have rules regarding strategies, drawdown limits, and daily loss limits, making it more important than ever to have a great trading strategy if you’re looking to become a prop firm funded trader.
In this article, we are going to look at the 5 best trading strategies for prop firm traders! So, let’s get into it…
The Best Prop Firm Trading Strategies
Trying to trade consistently and profitably in the financial markets without a trading strategy is more or less impossible. With emotion and human bias, going ‘all guns blazing’ into the markets without clearly defined rules to follow never works for the long term. Therefore, having a trading strategy you can execute in the markets over and over again, almost mindlessly, is the best approach for traders looking to seek prop firm funding.
What Do Great Prop Firm Trading Strategies Need To Contain?
Trading with prop firm funded accounts is much different than trading your own trading capital through a broker. This is down to the fact prop firms will have rules on things like maximum daily loss, maximum drawdown, and enforce traders using stop losses in every trade.
These are actually very good things as it means traders are forced to use greater levels of risk management – thus making them better traders and ensuring they can stay in the markets for longer!
So, what do prop firm trading strategies need to contain?
- A risk management framework
- Clear entry rules (Not subjective)
- Clear trade management rules
- Clearly defined exit rules
- Maximum trade thresholds (e.g. only 1 trade running at once)
- Rules around holding over the weekend
- Rules around days/times to trade
These are just some of the rules that need to be baked into your trading strategy if you want to be truly successful in the markets!
1. Trend Following
Trend following is a fairly simple trading strategy that gets good results for traders in prop firm situations. The trading strategy involves aiming to enter a long/short position near the start of a trend, once the trend is confirmed.
The idea is then to hold the trade for as long as possible, adding positions where possible until the trend is no longer continuing or market structure changes.
This strategy requires some robust rules to make it work consistently. However it can provide some great returns and huge risk-to-reward ratios when done correctly.
It’s worth noting that during ranging or consolidating markets, this strategy will take losses. It only nets great results during trending markets. Some currency pairs rarely trend, meaning they should be avoided.
2. Swing Trading
Swing trading is a great way to trade the markets as it doesn’t require spending a great deal of time in front of the charts.
Traders that swing trade use various different entry methods, such as EMA crossovers, support and resistance retests, and trendline breaks to enter the market, with the idea of holding the trade through to the swing highs and lows.
This strategy typically has a low win rate but huge risk-to-reward ratios, making it a great option for prop firm funded traders!
3. EA Trading
EA trading has become more popular over the last few months, with many ‘no code’ solutions being offered in the market. This means that traders can automate their own trading strategies without needing to spend thousands on developers to do this for them.
Any objective trading strategy can be automated – as long as you can create rules for every aspect of the trade and risk management strategy.
Once built, you can test the EA on thousands of days of trading data in just minutes – making it incredibly fast to build profitable trading strategies and test them, before using them for prop firm trading.
4. News Trading
News trading is a fairly risk-heavy strategy but it can yield some great results and certainly some huge risk-to-reward trades.
Traders use upcoming news events like FOMC or NFP to predict where the market will move, based on the expected news release outcomes.
This often gets traders in before the ‘big spikes’. Meaning they can ride the waves and net some great returns on their funded trading accounts!
5. Scalp Trading
Scalping is a very tough trading strategy but it does yield incredible results for profitable prop firm funded traders.
Scalping involves getting in and out of the market quickly, multiple times per session, making just a few pips profit per time.
This strategy typically has a high trading volume. Meaning you have lots of setups each day to capitalize on. However, scalpers must be sat on the charts for most of the London and New York sessions each day, making it impossible to scalp if you have a full-time job too.
How To Test Your Forex Trading Strategy Before Starting A Trading Challenge
Forex trading strategies should be thoroughly tested prior to starting a trading challenge with a prop firm. Why?
Well, you should be able to prove to yourself that the trading strategy is profitable over the long term and it’s robust enough to survive bad days/weeks/months in the markets.
This can be achieved by completing a backtest in the markets. There are various backtesting tools that can help you run backtests. This means you can test your trading rules over hundreds of trades within just hours.
When a backtest is finished, you should have a huge amount of data on your trading strategy. This will allow you to make refinements and improve profitability.
For example, trading on Fridays may prove completely worthless for your trading strategy and only result in losses over the previous few years. Therefor you should take Friday trading out of your live trading strategy.
Hopefully, you can see the value in undertaking a backtest of your trading strategy! However, it’s important to understand that backtests are useless if you use a subjective trading strategy. If you cannot make sure your strategy is rule-based, it will serve little to no value as your backtest results will not be replicated when trading live in the markets!
How To Choose The Best Prop Firm For Your Trading Strategy
There are going to be various prop firms suited to different styles of trading and different trading strategies.
For example, some prop firms do not allow traders to hold trades over the weekend or market close. This would make swing trading impossible. However, a prop firm like this might be great for scalpers or day traders.
So, how can you ensure that a prop firm is right for you?
1. Trading Rules
Before signing up with a prop firm, it’s worth checking the trading rules. Ensure that the rules around maximum drawdown, daily loss, holding, news, and trading hours will suit your trading style.
It’s also worth considering things like leverage and spreads if you’re trading the lower time frames. These will play a huge factor in your success.
2. Reputation
Regardless of your trading strategy, you won’t want to be working with a prop firm that doesn’t have a stellar reputation. This is crucial as you want to ensure you’re working with a company that actually has your best interests at heart.
For more help choosing a prop firm, check out our article, ’10 Questions to Ask Yourself Before Choosing a Prop Firm’.
3. Scaling Program
The scaling program of a prop firm is also essential if you’re looking to grow with your trading strategy and seek larger profits.
Some prop firms offer no kind of capital scaling. This means that you just have to take on additional funded accounts if you’re looking to scale your trading profits.
However, other prop firms do offer traders the ability to have their capital increased at regular intervals.
Prop Firms That Suit All Types of Traders’ Strategies
What often presents a challenge is finding a prop firm that caters to a diverse range of traders, each with their unique trading style and strategy. These prop firms seamlessly combine flexibility, customization, and comprehensive support. Making them an ideal choice for traders looking to maximize their trading success.
The5ers– The5ers are well known for their low slippage, tight spreads and high-quality market execution. This makes them a great choice for traders with all different types of strategies.
The Funded Trader – The Funded Trader is another great choice for a variety of different traders. This is due to the fact that they allow copy trading, news trading, grid trading and allow holding over the weekend.
FundedNext– FundedNext is a popular choice amongst many different types of traders. This is mainly because of their raw slippage and they allow EA and news trading.
In Summary – What Are The Best Trading Strategies For Prop Firm Trading?
In conclusion, there are various trading strategies that traders can use when trading with a prop firm. These include swing trading, scalping, EA trading, news trading, and trend following.
Each of these strategies should be backtested thoroughly before signing up for a prop firm challenge and getting stuck into the live markets!
