Trading professionally with a prop firm is exciting.
You get funded with significant capital, reduce your personal financial risk, and have opportunities to generate substantial income.
But there’s one catch – you need solid, proven strategies.
You can’t just guess your way to consistent profits, especially when trading with someone else’s capital.
This guide is going to cover the most common prop trading strategies – thoroughly explained, deeply researched, and ready to help you navigate markets confidently and profitably. Let’s dive in!
Prop Trading Strategies – 10 Best Strategies
Here are 10 proven strategies for prop trading.
1. Momentum Trading
Momentum traders look for assets showing strong, sustained directional moves fueled by high volume. Essentially, you’re catching and riding waves in the market.
Tools like RSI (Relative Strength Index) or MACD (Moving Average Convergence Divergence) can help confirm momentum strength.
Let’s say EUR/USD breaks above a key resistance level on high trading volume with news driving it upward.
Momentum traders would quickly enter long positions, capturing the upward surge, and exiting promptly as momentum fades.
2. Mean Reversion
Mean reversion traders bet that prices eventually return to their historical averages.
They rely on indicators like Bollinger Bands and moving averages to find overstretched price movements, anticipating corrections toward equilibrium.
For instance, if Gold (XAU/USD) drastically exceeds its 20-day moving average and shows signs of losing momentum, mean reversion traders anticipate a correction and enter short positions accordingly.
They will exit when prices move back towards their historical average.
3. Breakout Trading
Breakout traders aim to capture significant price moves when assets break through clearly defined support or resistance levels.
Effective breakout trading involves waiting patiently for high conviction signals, usually marked by increased volatility and strong volume.
Imagine Apple stock repeatedly tests the $200 resistance without breaking it.
When price finally penetrates this key barrier, accompanied by heavy volume, breakout traders buy immediately, riding the strong directional push.
4. Scalping
Scalping involves quick, small profits by rapidly opening and closing trades, usually within seconds or minutes.
Scalpers rely heavily on tight spreads, high liquidity, and fast execution platforms.
An example might involve trading the Nasdaq-100 futures contracts (NQ).
A trader might make dozens of trades daily, each lasting only minutes, aiming for small incremental profits – like gaining just a few ticks (smallest price increments), which accumulate substantially across numerous trades.
5. Trend Following
Trend-followers trade by identifying and riding longer-term market trends, typically using moving averages and price action patterns.
They avoid predictions, instead focusing purely on established directional moves.
For instance, during a strong bullish trend in crude oil prices, trend-followers enter long positions once price action confirms the trend’s strength – such as price steadily trading above a 50-day moving average – and hold trades until clear trend reversals appear.
6. Swing Trading
Swing traders hold positions over multiple days or weeks, capitalizing on mid-term price swings.
They utilize technical analysis alongside fundamental analysis to inform entries and exits, balancing short-term volatility with longer-term directional bets.
A swing trader might observe Tesla shares showing oversold conditions after negative news.
Anticipating a price bounce, the trader enters long positions and holds for several days or weeks until the stock recovers to fair valuation.
7. News-Based Trading
News traders focus on trading around scheduled news events or unexpected announcements.
They rely on economic calendars, monitoring data like unemployment rates, GDP announcements, or central bank decisions.
Taders often closely watch Federal Reserve meetings.
If the Fed unexpectedly hikes interest rates, news-based traders swiftly short bonds or equities, profiting from immediate market reactions and volatility spikes.
8. Arbitrage Trading
Arbitrage trading exploits minor pricing differences between identical or closely related assets on different exchanges or markets.
Traders quickly buy the undervalued asset and simultaneously short the overvalued asset to lock in small, nearly riskless profits.
For example, a trader notices Bitcoin priced at $45,000 on Exchange A but at $45,200 on Exchange B.
They quickly buy on Exchange A and sell on Exchange B simultaneously, pocketing the $200 difference per Bitcoin.
9. Pairs Trading (Statistical Arbitrage)
Pairs trading involves trading two correlated instruments simultaneously, betting that the spread between their prices will revert to its historical mean.
This method leverages statistical relationships rather than directional predictions.
If Coca-Cola and Pepsi historically move in unison but suddenly diverge significantly – say Coca-Cola rises sharply while Pepsi remains flat – a pairs trader shorts Coca-Cola and goes long Pepsi, profiting when their prices converge again.
10. Volume Profile Trading
Volume profile traders analyze volume traded at different price levels, identifying key areas of market acceptance and rejection.
High-volume nodes serve as support or resistance, guiding trades based on anticipated reactions.
An S&P 500 futures trader identifies a strong volume cluster around 4,500.
If prices test this level again, the trader anticipates strong support, buying dips around this node and exiting at the next significant volume level higher.
Benefits of Using These Strategies for Prop Trading
Employing solid trading strategies is critical for consistent success in prop trading:
- Risk Management: Defined strategies set clear risk boundaries, significantly reducing emotional or impulsive decision-making.
- Profit Consistency: Proven approaches enable traders to produce consistent profits rather than random wins and losses.
- Improved Discipline: Following structured methods reinforces disciplined trading habits, crucial for long-term success.
- Scalability and Adaptability: Effective strategies can be adjusted across different asset classes and markets, enhancing flexibility and maximizing earnings potential.
- Reduced Stress and Better Psychology: Trading systematically reduces stress levels, enabling traders to maintain psychological stability under pressure.
Best Prop Trading Firms to Employ These Strategies
Now that you have the strategies, you also need a top trading firm to implement them. Here are my two top options.
1. FunderPro (Top Recommendation)
FunderPro stands out due to its flexibility and support for diverse strategies.
Whether you’re scalping, swing trading, or employing statistical arbitrage, FunderPro provides reliable platforms (MetaTrader 4 and 5), fast execution, flexible trading conditions, and high profit splits up to 90%.
FunderPro welcomes various trading styles, including overnight and weekend positions, making it ideal for traders applying multiple strategies.
2. Apex Trader Funding
Apex Trader Funding is excellent for traders who prefer clear conditions, structured scaling, and straightforward rules.
They’re especially suitable for momentum, breakout, and trend-following strategies due to consistent rules, transparent evaluations, and manageable profit targets.
Apex provides steady scaling opportunities and reliable support, making it easy to grow your trading capital.
Frequently Asked Questions
Can I Use Multiple Prop Trading Strategies at Once?
Yes, many successful traders combine strategies – like momentum trading with news-based trades – provided each method is clearly structured and tested individually.
Which Strategy Is Best for Beginners?
Trend-following and swing trading typically suit beginners, providing clear entry and exit signals without the intense pace required by methods like scalping.
Do All Prop Firms Accept Arbitrage Trading?
Not all. Some firms explicitly forbid arbitrage or other high-frequency trading styles. Always confirm the firm’s rules carefully before employing a strategy.
How Do I Choose the Best Strategy for Me?
Evaluate your personal traits: time availability, risk tolerance, and psychological comfort. Then test a few suitable strategies thoroughly on demo accounts before committing real capital.
Conclusion
Selecting and mastering effective prop trading strategies is the cornerstone of success in proprietary trading.
The strategies outlined above are deeply researched, broadly proven, and specifically chosen for their relevance in today’s market environment.
By understanding these methods and aligning them with a quality firm – such as FunderPro or Apex Trader Funding – you position yourself strongly for sustainable trading success.
Trading is a journey, and it’s your structured approach, rigorous discipline, and the right strategy choice that turns opportunities into steady profits.
Now, you’re fully equipped to embark confidently on your prop trading path.