One of the most potent insights of prominent and successful trading firms is the emphasis on developing a strategy. In any form of trading, using a system backed by proven theories is more successful and thus profitable than acting on common influences like emotions, prevailing opinions, or instincts alone.
You can employ one, two, or several strategies, but each requires considerable commitment to learn when you can be effective in the market. Fundamental analysis, interval trading, and following trends are working techniques commonly used by proprietary trading firms.
You will focus on events relevant to a particular company during fundamental trading. This strategy is a long-term approach because it relies on a buy-and-hold philosophy. You analyze a company’s financial statements and other public information to determine its intrinsic value.
As a fundamental analyst, you aim to buy stocks you believe are undervalued by the market. The premise of this trading strategy is that asset prices fluctuate in the short term due to speculations and market sentiments. However, asset prices will revert to their intrinsic values over the long haul, allowing you to profit.
In some instances, trading on fundamentals can generate significant profits in a short period. You can readily see how fundamental trading is such a foundational and versatile method that it overlaps with other trading strategies. Most notably, fundamental trading is often used in scalping, momentum, and technical trading. Reputable prop trading firms will offer integrated tables and software to enhance market analyses.
Timing Is Everything with Interval Trading
If you have heard of one of the more popular market strategies, day trading, it falls under exploiting intervals. As the name implies, a trader gets in and out of their position within the day. You can accomplish a profitable trade in a few minutes, or it may take several hours. Like all interval trading, day trading requires consistent timing, which you can only accomplish through education about market movements and some trial and error. Other interval trades include the following timing variations:
- Scalping – generally shorter time frames than day trades; you can get in and out of trades within minutes; commonly seen in Forex trading of exchanges like EURO/USD
- Swing trader – longer than day trading, you typically hold your position for several days to a few weeks; your goal is to ride an asset in one direction (usually upward) and then exit as it turns, similar to trend trading but over a shorter time frame
- Position trader – you will hold your position for months and sometimes years on your faith that an asset will continue to rise overall; most conservative interval prop trading strategy with the lowest risk
Trending Is for More than Streaming
Trend trading involves pinpointing and trading in the direction of prevailing market trends. Like when choosing a movie to stream, you might see what is trending and jump on that train. The only way to trade in sync with the current trend is to correctly identify it, which requires skill, education, analysis, and intuition.
Although you do not want to rely solely or too heavily on “gut feelings” when you trade, reading a trend requires sharp instincts to increase your chances of success. In this method, you base your trades on the premise that trends persist and can be profitable with a correct read. Like other strategies, you can use technical analysis to identify potential waves of market movement. Trading trends is another long-term strategy that typically holds your position for several weeks or a few months.
How can you take advantage of trends?
There are many different ways to trade trends. Some traders use moving averages to identify potential trend reversals, while others use candlestick patterns. You might also focus on trading in the direction of the overall market trend or place your positions in the same direction as specific sectors or industries. Awareness of the risks involved in trend trading is crucial to avoid losing money because the trend reverses against you.
Insights from proprietary trading firms can take up a book, but one of the most effective is formulating an organized approach. There are numerous strategies from which to choose, including fundamental, interval, and trend trading.