💡 Now that you have become familiar with the asset you are interested in trading, let’s look on how we can pro actively apply that knowledge to your trading. Here is my input on the style of trading that works best in a prop firm setting.

Mastering Control for Consistent Profits

Having full control over your trades is key to avoiding costly mistakes with prop firms. The best way to achieve this is by trading within a single daily time window when the market is open.

Why Day Trading Works Amazing for Prop Firm Challenges

Day trading provides several advantages when taking on prop firm challenges:

  1. 🕰️ No need to worry about market reset equity/balance drawdown calculations
  2. 💸 No extra swap fees from holding trades during market resets
  3. 📰 Easily trade around news events, reducing drawdown risk from volatility spikes
  4. 📈 Clear structure on trades/days needed to potentially hit profit targets
  5. 💰 Multiple opportunities to capture profits throughout the day

Defining a Day Trade

A day trade is classified as having a trade open for as many hours as possible within the daily session, while ensuring it has a high probability of being closed before the market resets. The average day trade duration is typically 4-8 hours, but can range from 1-2 hours to 14-16 hours depending on market volatility and conditions.

Minimizing Spread Costs

The duration of a trade matters because of spread costs. By finding the right balance between your trade's TP/SL range and the average time the trade is open, you can maximize your TP/SL while still classifying it as a day trade. This way, your spread or commission costs account for a much lower percentage of your overall trade range.

For example, if your spread cost is 1 pip and your TP/SL is 5 pips, then your spread cost accounts for 20% of your trade range. This is an extremely high percentage, putting you at a 20% disadvantage the moment you open the trade.

However, if you open a trade with a 50 pip TP/SL because you know the price is likely to move that far within a day, the spread costs will only account for 2% of your position. In this case, the broker's edge only gives you a 2% disadvantage rather than 20%. This can be a powerful advantage.

💡 While scalping and swing trading can be viable strategies, they often put prop traders in a disadvantageous position for long-term success. This topic deserves a more in-depth discussion, perhaps in a future podcast episode.

Setting Stop Loss Levels

To find an appropriate stop loss (SL) range for your day trades, it is highly recommended to use the 1-hour Average True Range (ATR) indicator for the asset you are trading.