Introduction

Picture this: you wake up to the news in the morning. The news flash on your trading platform reads “your payout is $50,000.” Sure, this kind of news is every trader's dream but seems too good to be true if you have not identified the most accurate trading strategy. For most prop firm traders, winning $50,000 payout in a day means they have used accurate trading strategies for real markets. In short, using the most accurate trading strategies in the real market can increase your chances of success in prop trading.

If you’ve ever wondered how could you make $50k overnight in prop firm trading, we would say that there are many ways to make money in prop trading, but the best way is to use accurate strategies that are back-tested for the real markets. Identify effective strategies that work for you.

Traders often search for the most accurate trading strategies in real market conditions. Note that strategies in the real market may differ from the simulated environment of prop firm trading. Most prop firms in their challenge phases deploy demo accounts with simulated capital and market conditions that mimic real market conditions. Strategies that work in demo accounts may not work in the real markets.

So, what trading strategies actually work in real prop firm market conditions?

In this guide, we will share valuable insights to help you confidently identify and apply effective trading strategies that will redefine your success in trading and take it to the next level.

Prop Firm News Trading for Real Markets

When economic and financial news and reports are released, they can affect the market prices for specific asset classes. Traders can quickly take a position based on the news release, often within 2 minutes before or after the news is released. By understanding the type of news release, traders can capitalise on the resultant price movements.

Example of News Release and Traders' Benefit:

The US employment monitoring body releases the NFP report monthly to report the U.S. employment status. This report can impact the U.S. dollar, indices, stock prices, and commodities.

Suppose the market analysts predict employment numbers expectations before the report release.

• Scenario 1 - If the numbers in the News reports are higher than the expectations, it suggests a stronger economy.
• Scenario 2 - If the numbers in the News reports are below expectations, it suggests a weaker economy.

In Scenario 1, traders might immediately buy the U.S. dollar against other currencies (e.g., EUR/USD short). A strong economy often leads to an increase in interest rates.

In Scenario 2, traders quickly sell the U.S. dollar (e.g., EUR/USD long). They expect an interest rate cut due to a weaker currency and potential interest rate cuts.

This news trading report may lead to a large volume of similar rapid trades. As a result, the price moves sharply and quickly. Traders can profit from the market volatility triggered by the NFP report.

Prop Firm Overnight and Weekend Holding Strategy for Real Markets

Weekend and overnight holdings include trades overnight, beyond a single day, or beyond the weekend. These strategies work with swing trading because it is a longer-term trading strategy that holds trades for a long period.

Overnight and Weekend Holding Trading Strategies

Overnight holding in the stock market: A company, XYZ, offers tech stocks to a trader. The stock indicates an upward trend throughout the day, and the trader expects positive earnings after the day closes. The trader places an after-market buy order. The trader expects that the opening price the next day, when the market opens, will be higher than the closing price of the previous day. Hence, the trader expects profits from the increased demand and upward price trend.

Stop Loss Trading Strategies

Stop Loss is one of the most important and profitable trading strategies used by traders, that most prop firms make it mandatory in to prevent traders from making huge losses from a single trade or in a single day. Traders can prevent exceeding the drawdown limits that can cause account breaches. You can use a static or trailing stop loss method.

• Stop loss Example: A trader buys a stock at $10. The trader notices a strong support level at $8. It means that the price will bounce back upward to $8. The trader uses a stop loss of $7.90. If the price falls below $7.90, the trader’s technical analysis is incorrect and will trigger a stop loss. They exit the position. The stop-loss strategy helps the trader prevent further losses because of incorrect technical analysis.
• Trailing Stop Loss Example: A trader buys a stock at $10 and sets a trailing stop loss of 5%, which makes $9.50 as the loss price. If the stock price moves upward to $11, the new stop loss price level is now at $10.45 ((=$11-($11*5%)). If the price drops below $11, the order gets executed at $10.45, preventing further losses and exceeding the prop firm's drawdown limits.

Other Commonly Used Trading Strategies in Prop Firms

Scalping

Traders engage in scalping with the intention of quick profits from trades, typically within seconds to minutes. It results from small price changes. Traders use scalping with high leverage and frequency.

Example: Imagine Tom trading shares of a highly liquid Bank stock. The stock price is $100 per share. Tom uses a 1-minute chart to identify profitable trading opportunities using the scalping strategy. The price is fluctuating in a narrow range of $99 and $101. Considering the support level from where the price will increase, Top decides to buy 100 shares at $99, investing $9900. Tom observes, within a couple of minutes, that the price moves to $99.5. Tom quickly sells all 100 shares at $99.50, profiting $0.50 per share, making the total profit from scalping to $50 (=($0.50*100).

Tom earned a profit of $50 in 2- 3 minutes and can repeat it multiple times within a single trading day. Tom, as a scalper, has to trade many times daily to add to the small profits.

Trend Following Trading Strategy

Trend Following is an effective long term strategy where a trader waits to confirm a long term trend before entering the trade. Based on technical indicators (moving average), trend following is buying assets in an uptrend and selling in a downtrend. A trader can use moving average, breakout strategies, or trailing stop losses as a trend following strategy. Let us understand the trend with an example of a breakout strategy.

Example: Tom observes a stock consolidating at $100 that breaks above $120 with high volume. Tom buys the stock in high volume and stays in until the stock reverses.

Minimum Risk Per Trade Strategy

The minimum risk per trade is a mandatory risk management rule for most prop firms to prevent huge losses and protect the capital. The recommended minimum risk per trade is between 0.5% to 2%. It is the minimum position sizing combined with a stop loss strategy and risk-reward ratio.

Let's take an example by applying the 1% Rule

• Your account balance = $10,000
• Your Risk: 1% per trade

Step 1: Calculate Maximum Dollar Loss

It is the maximum amount the trader is willing to lose on this specific trade.

$10,000 * 1% (0.01) = $100 maximum loss per trade.

Step 2: Determine Stop-Loss Placement

You analyse a stock, Company XYZ, and decide to buy it at $50 per share (entry price). Based on technical analysis (e.g., a support level), you place your stop-loss order at $48 per share.

The risk per share is the entry price minus the stop-loss price: $50 - $48 = $2 per share.

Step 3: Calculate Position Size

Determine how many shares you can purchase while staying within your maximum dollar loss limit ($100).

Position size = Maximum dollar loss / Risk per share = $100 / $2 = 50 shares

Step 4: Set a Take-Profit Target

Following the 1:2 risk-to-reward ratio prop firm guideline, you target a profit of at least $4 per share (2 * $2 risk per share).

Your target price would be $50 (entry) + $4 (profit target) = $54 per share

Summary of the Trade

Conclusion

There are many accurate and profitable trading strategies that a trader can use, but the above mentioned are the most popularly used prop firm trading strategies. Prop trading firms want you to understand the rules and utilise these profitable trading strategies to maximise your income and minimise your losses.

If you want to read about more strategies, The Trusted Prop has created a large pool of strong educational resources on the most accurate strategies for real market conditions for you to explore. You can refer the website to learn the prop firms strategies that a trader must know before starting with a prop firm.