Best Prop Trading Strategies

The best prop trading strategies include trading the news, trend following and strategic trading intervals. Trade these strategies and more with Apex Trader Funding!

Prop trading strategies are designed to capitalize on short-term market movements and maximize returns using a firm’s own capital. Unlike long-term investing, these strategies often rely on speed, precision, and risk management to generate consistent profits. For beginners and seasoned traders alike, mastering these strategies can make the difference between steady profits and costly mistakes in the fast-paced world of proprietary trading.

Continue reading to learn about some of the best prop trading strategies.

3 Best Prop Trading Strategies

The prop trading market has exploded with the rise of new technology, which makes it a readily available endeavor for many people. Because it’s such a competitive field with a person’s compensation directly related to their performance, care must be taken to ensure trading is done in the most effective way.

The most successful prop traders employ one, some, or all of the following major proprietary trading strategies to earn a profit after getting funded. These strategies take time to master, and even when run perfectly, will not guarantee a positive return. However, these common strategies can help you explore the prop trading sphere.

Let’s dive in and discuss a few of the top prop trading strategies used today.

1. News Trading

Evidenced by the worldwide upheaval of the economy due to the COVID-19 pandemic, it’s easy to see that newsworthy events can shake up the stock market. While many news events aren’t this impactful, some trading strategies examine newsworthy events to inform the decision about when to buy or sell related assets.

Most traders follow financial news or use native news feeds like Benzinga Pro to speculate on which direction a company’s stock might take in the short term. Public companies are required to release quarterly earnings reports, and these reports can often cause large fluctuations in the company’s stock based on whether they exceed or fall short of projections.

On a more macro level, changes in monetary policy made by the Fed or interest rate adjustments can signal it’s time to buy or sell certain stocks. Data on the economy as a whole is also news that can dictate trading activity, such as unemployment rates, changes in the consumer price index, GDP data, and other overall market data. A trader must carefully analyze all this information before making any trade decisions.

2. Trend Following

Considered the most intuitive prop trading strategy, trend following involves examining the historical performance of a stock, industry, or index as a whole and then using established trends to make trade decisions on buying and selling in the current environment.

Using trend following as a strategy involves setting benchmarks for entry and exit points in a stock trade. These points are usually based on a percentage growth or decline in the stock price, which has historically signaled that the stock will rise or fall over the upcoming trading sessions. When buying based on trend following, you’ll see a significant change as a flag to buy, with another predetermined change threshold to sell.

Traders who use trend following often tailor their strategy to meet their own benchmarks and can use the help of technology to identify trends and know when to buy or sell. Note that this strategy is often more volatile, so you may need to set more conservative benchmarks to stay within the rules of your proprietary trading firm.

3. Strategic Trading Intervals

Some of the most popular prop trading strategies revolve around the amount of time the trader intends to hold the stock. From holding stocks for just minutes to keeping the same trade for weeks or months, here are a few different intervals and a little background on why a trader might use each.

• Scalping: Scalping is done on a minute-to-minute basis, with no trades being held overnight. A trader using the scalping strategy is constantly evaluating a stock’s performance and has positions set within a stock to buy and sell it, sometimes numerous times throughout the same day, with the goal of capitalizing on the real-time fluctuations in the market.
• Day Trading: Day traders hold assets for a longer period of time than scalpers, with the goal of selling the stock before the end of each trading day. This means that day traders might sell a stock after only a few minutes or multiple hours. Day traders, like scalpers, must have ideal timing on their trades in order to be profitable.
• Swing Trading: Swing traders hold stocks longer still, for a period of several days to weeks, with the goal of riding a wave of positive activity and then exiting when the positive trend ends. Swing traders ideally will exit a stock as it heads down and then jump back in over and over to maximize their profits.
• Position Trading: The longest-held stocks purchased by a prop trader, position trades can be held for months or even years. While there is generally less profit to be made in position trading, traders who use this strategy are betting on a positive trendline over time to generate a return. While this strategy is more conservative, there is less risk of overall loss from the longer timeline.

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Benefits of Employing Prop Trading Strategies

Whether they are using advanced historical data, mining news articles for stock-impacting tidbits, or constantly monitoring real-time market fluctuations, successful prop traders have some kind of strategy in place.

Even though you’re using someone else’s money in proprietary trading, it’s still important to be careful. Most of the time, there is a high barrier to entry to become a prop trader — and if you aren’t profitable, you will soon be out of a job. The following are some of the benefits that come with outlining your strategy and putting one of the trading strategies above into place.

• Data-driven Approach: Using a well-defined strategy when trading, even when trading the news, allows a trader to reduce the use of emotion in making trading decisions. If you have no strategy in place, you’re more likely to make a decision on impulse or emotion, which is not a recipe for long-term success.
• Credibility: You can follow several paths to become a prop trader, but most involve a trial period or a personal interview. If you have to go through an interview process, having a strategy you can clearly define helps you establish credibility as an experienced trader.
• Track Record: There is a reason these strategies are well-documented and used by successful traders. Using a defined trading strategy that has a track record of success is more likely to improve your chances of making profitable trades.

Drawbacks of Prop Trading

When considering a career as a prop trader, it’s important to consider the benefits and drawbacks. Even if you have a track record of success and great strategies in place, prop trading carries risks related to the fact that you’re trading with someone else’s funds under contract.

• Lack of Regulation: Proprietary trading firms that aren’t also operating as broker-dealers may not be regulated or overseen by the U.S. Securities and Exchange Commission (SEC). Taking the lion’s share of profits, bogus initial fees, and failure to pay out or theft of funds are all risks in this industry, so it’s crucial to research the firm and ensure it has a positive reputation before getting involved.
• Barriers to Entry: To begin prop trading, you might need to pay a deposit and keep current with high monthly fees. If you’re a successful trader, this typically isn’t an issue because you can cover these expenses easily. However, if you’re just starting out, you could quickly find yourself losing money or out of a job.
• Lack of Freedom: Most firms will limit the type, duration, or amount of transactions you can make, which keeps some traders from maximizing their profitability.

Is Prop Trading Right for You?

Prop trading can be a rewarding path for those who thrive in fast-paced, high-pressure environments and are willing to take calculated risks with discipline. It offers access to capital, advanced tools, and the potential for high earnings—but it also demands resilience, continuous learning, and strict risk management.

If you enjoy analyzing markets, can handle uncertainty, and are committed to honing your trading skills, prop trading may be the right fit. However, if you prefer stability and lower risk, traditional investing or long-term strategies may be better suited to your goals.

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