Types of Strategies Used in Prop Trading

Types of Strategies Used in Prop Trading

Mastering the right prop trading strategy types can significantly increase a trader’s chances of passing evaluations and consistently achieving funded status. In the world of proprietary trading, strategy is more than just a buzzword—it’s the core of every decision a trader makes. Whether you’re new to trading or already testing your skills with a firm like Larsa Capital, understanding your strategic options is the foundation for long-term success.

In this article, we’ll walk through the most commonly used prop trading strategies, helping you determine which aligns best with your trading goals and personality. Each type has its unique characteristics, risk profiles, and timeframes, making it essential to assess both strengths and challenges before committing.

Scalping: Precision in Seconds

Scalping is one of the most active prop trading strategy types, relying on rapid entries and exits to capture small market movements. Traders using this strategy may open dozens—or even hundreds—of trades in a single day.

The advantage lies in minimizing exposure to market risk. However, it also requires a high level of focus, advanced execution speed, and solid risk management techniques. Many scalpers take advantage of short-lived inefficiencies and liquidity bursts, especially during market opens or major news events. Since news trading is not allowed at Larsa Capital, scalping must rely on technical patterns and momentum instead.

Traders considering this approach must ensure their internet connection, platform, and reflexes are all optimized. While the rewards can be consistent, the physical and mental demand makes it unsuitable for everyone.

Swing Trading: Balance Between Activity and Patience

Swing trading strikes a balance between short-term excitement and long-term strategy. Instead of focusing on minutes or hours, swing traders typically hold positions for several days or even weeks. The goal is to capture larger market moves by identifying medium-term trends.

This strategy is especially appealing to those who can’t sit in front of screens all day. Traders can use a combination of technical indicators, price action, and sometimes even sentiment analysis to guide decisions.

Moreover, since positions are held overnight, understanding broader market cycles becomes crucial. Transitioning from a scalping mindset to swing trading requires patience and trust in the analysis process, but the lower frequency of trades can lead to more measured decisions.

Trend Following: Ride the Wave

Another timeless entry in the catalog of prop trading strategy types is trend following. This strategy revolves around the idea that “the trend is your friend.” Traders identify upward or downward market momentum and then enter in the direction of that trend.

Trend followers often use moving averages, breakout systems, or price channels to confirm trend strength and establish entry or exit rules. Because this strategy tends to work better in strong directional markets, it may underperform during sideways or ranging conditions.

While it can offer significant returns during trending environments, traders must develop a system to avoid whipsaws and false signals. Using trailing stops, for instance, can help lock in profits while allowing the trade room to grow.

Mean Reversion: Profiting from Overreactions

Mean reversion strategies operate on the principle that prices tend to return to their average over time. When markets deviate too far from historical norms—either upward or downward—mean reversion traders seek to capitalize on the eventual correction.

This method requires careful analysis of standard deviation, Bollinger Bands, or relative strength index (RSI) to identify overbought or oversold conditions. It’s not about guessing reversals; rather, it’s about statistical probabilities.

However, this approach comes with its own risks. In strong trends, a price may not revert quickly, or at all, resulting in prolonged drawdowns. As a result, strict risk management is key.

Breakout Trading: Capitalizing on Momentum

Breakout traders aim to identify key levels of support and resistance. When price breaches these levels with increased volume, it often signals the beginning of a strong move. This momentum can be exploited for swift profits.

The beauty of this strategy lies in its simplicity. Clear setups often present themselves around major economic releases, market open hours, or significant technical formations like triangles and wedges.

To improve accuracy, breakout traders often combine volume analysis with price action or wait for confirmation candles. While false breakouts are common, having pre-defined stop losses and entry rules mitigates risk.

News-Averse Strategy: Trading Without Events

Given the restriction on news-based trading at Larsa Capital, it’s worth highlighting that successful prop traders can thrive without reacting to headlines. Instead of jumping into the market based on unexpected announcements, traders can focus on price action alone or combine it with time-based patterns.

For example, traders might study how assets typically behave during specific sessions or after market open. By isolating patterns and behaviors unrelated to external news, they maintain control and discipline, avoiding the volatility spikes that news can bring.

This strategic discipline also contributes to better emotional control and more stable performance metrics over time.

Choosing the Right Strategy for You

Selecting from the many prop trading strategy types depends on multiple personal factors—risk tolerance, availability, personality, and trading capital, to name a few. No single strategy works for everyone, and most successful traders refine or even combine strategies over time.

Here are a few steps to help identify the best fit:

• Assess your schedule: Do you have time for active scalping, or does swing trading suit your lifestyle better?

• Know your temperament: Can you handle fast-paced decisions, or do you prefer slow, calculated moves?

• Backtest consistently: Before risking real capital, test the strategy thoroughly over historical data.

• Track your metrics: Use a trading journal to understand which methods align with your performance.

Importantly, traders at Larsa Capital have access to structured evaluation environments that allow them to experiment with these strategies in a risk-managed way. This flexibility empowers traders to discover their strengths while staying within professional trading standards.

Final Thoughts

Understanding the range of prop trading strategy types is essential for anyone aspiring to thrive in this competitive arena. Whether you lean toward quick scalps, prefer holding positions over days, or rely on statistical models, every strategy offers unique advantages and challenges.

The key is consistency. Whichever path you choose, make sure your rules are clear, your discipline is firm, and your mindset is prepared. At the end of the day, strategy alone won’t make you profitable—but the right strategy, applied with precision and patience, just might.

By developing a structured approach and leveraging the resources available at firms like Larsa Capital, traders position themselves not just to pass evaluations, but to succeed in the long term.