5 successful trading strategies for prop challenges

Passing a prop firm evaluation requires more than just basic trading knowledge. It's about having the right strategy that works under the specific conditions and rules that prop firms have. In this article, I share five proven strategies that have helped many Swedish traders successfully pass their prop challenges.

Why do you need a specific strategy for prop evaluations?

Prop firm evaluations differ from regular trading in several important ways. You trade with virtual capital but under strict rules and time constraints. Rule violations lead to disqualification, regardless of how profitable your trading is.

Therefore, you need to adapt your trading strategy to:

• Prioritize capital preservation over profit
• Reach the profit target within the given time frame
• Minimize the risk of breaking trading rules
• Handle the psychological pressure that comes with the evaluation

Let's explore the five most successful strategies for prop trading evaluations.

1. The conservative swing trading strategy

This strategy is perfect for traders who want to minimize risk and reduce the time spent on daily trading. Swing trading involves holding positions from a few days up to a few weeks, making it ideal for prop traders who can't monitor the market all day.

Implementation for prop trading:

Identify strong trends on weekly and daily charts and look for corrections. Enter the trend at pullbacks with a smaller position than you normally would take. Use a trailing stop-loss and secure profits along the way.

2. The low-risk breakout strategy

Breakout strategies are effective during prop evaluations because they can provide quick profits when the market moves with strong momentum. The key is to adapt it to minimize risk.

Implementation for prop trading:

Look for consolidation patterns where price moves in a narrow range, followed by a breakout with increased volume. Enter when the breakout is confirmed, but place your stop-loss tighter than normal. Set clear profit targets and take partial profits along the way.

For prop evaluations, avoid breakouts around major economic news and be especially careful to check that trading doesn't occur during prohibited times according to the prop firm's rules.

3. Range-bound trading with high probability

Range-bound trading is ideal for more risk-averse traders and works particularly well during sideways markets. This strategy prioritizes consistency over spectacular gains.

Implementation for prop trading:

Identify price ranges that are clearly respected. Buy near bottom support with stop loss just below support. Sell near resistance with stop loss just above. Use indicators like RSI to confirm overbought/oversold conditions.

4. Trend-following strategy with position scaling

Trend-following is a proven way to generate significant profits in trending markets. For prop trading, we adapt this strategy with position scaling to handle risk more effectively.

Implementation for prop trading:

Identify the dominant trend using higher time frames. Use lower time frames to find corrections against the trend. Enter during these corrections with a smaller initial position. When the position goes into profit, add small positions at favorable levels while moving your stop-loss to protect the profit.

For prop evaluations, use this strategy selectively on markets with clear and strong trends. Be careful that the position, even after scaling, doesn't exceed the firm's maximum position size or risk rules.

5. News-driven momentum strategy

The market reacts strongly to economic news and events. This strategy exploits these reactions to enter shorter, high-potential positions when market volatility increases.

Implementation for prop trading:

Prepare before scheduled economic news by identifying key technical levels. Wait for the news to be released and initial volatility to calm down (usually 5-15 minutes after release). Enter in the direction of the strongest price movement if it shows signs of continued momentum.

For prop evaluations, use particularly tight stop-losses on these trades and consider automating profit exits to lock in gains quickly. Be prepared to exit the position if momentum subsides.

Adapting strategies to prop firm rules

Regardless of which strategy you choose, you must adapt it to the specific rules of the prop firm you are applying to. Here are some important adaptations:

• Daily loss limit: If the firm has a daily loss limit of 4%, keep your total daily risk exposure below 2-3% to have a safety margin.
• Maximum position: If there's a limit on position size, ensure your position scaling strategy never exceeds this.
• Trading hours: Some firms restrict trading during important news or have specific hours when trading is allowed. Adapt your trading strategy to these times.
• Minimum trading days: If the firm requires a minimum number of trading days, plan your trades to be evenly distributed throughout the evaluation period.

Combining strategies for best results

The most successful prop traders often combine different strategies based on market conditions and where they are in the evaluation process.

Recommended balanced approach:

1. First 30% of evaluation: Use range-bound strategy and conservative swing trading to build up a buffer of profits without major risk.
2. Middle 40% of evaluation: When you have a profit buffer, integrate more breakout and trend-following strategies to accelerate profit growth.
3. Last 30% of evaluation: If you're approaching the profit target, return to more conservative strategies. If you're behind, consider more focused momentum trades under favorable market conditions.

Psychological adaptation for prop trading

In addition to technical strategies, you must adapt your trading psychology for prop firm evaluations:

• Handle time pressure: Avoid feeling pressured to reach the goal too quickly, which can lead to overtrading.
• Accept missed opportunities: You must be comfortable missing certain trading opportunities to follow the rules.
• See evaluation as part of your long-term plan: A failed attempt is not the end - it's a learning opportunity.
• Keep a trading journal: Document not only your trades but also your feelings and reactions to identify patterns.

Conclusion

To succeed with a prop firm evaluation, you need to combine disciplined risk management with a strategic approach tailored to the firm's specific rules. The five strategies we've discussed in this article have proven to work for many Swedish traders, but remember to adapt them to your trading style and experience level.

Always prioritize capital preservation over quick profits, and build up your account gradually and methodically. With the right strategy, discipline, and patience, you can increase your chances of passing the evaluation and starting your career as a prop trader.

Good luck with your prop trading journey!