Increased profits are one of the advantages of proprietary trading. Unlike when acting as a broker and earning commissions, prop trading allows the firm to keep 100% of the profits. Despite being commonly thought of as risky, proprietary trading is often one of the most profitable operations. Trading technology and other automated software are available to proprietary traders. They can access a wide range of markets and automate processes, as well as engage in high-frequency trading, thanks to sophisticated electronic trading platforms. Traders can use their computers to develop trading ideas, test them, and run demos. But this leaves us an important question to answer. What are the strategies that prop traders use to maximize returns?

To answer the previous question, we must first understand that trading strategies are not the same, not even close. Although there are an infinite number of trading strategies and concepts, they can be divided into two categories.

Discretionary VS Systematic (Algorithmic) trading 

One of the first decisions new traders must make is whether to trade discretionary or systemically. One on hand, discretionary trading involves making decisions. Based on current market conditions, the trader decides which trades to make. On the other hand, trading that is based on rules is known as systematic trading. The trading system decides which trades to make, regardless of market conditions.
Systematic trading and discretionary trading can both be profitable. That is to say, the decision should be based on the trader’s personality. Some traders will quickly determine which type of trading is best for them, while others may need to try both before making a decision.

Discretionary trading in depth

In discretionary trading, the trader decides which trades to make based on the information available at the time. A discretionary trader can (and should) still stick to a trading strategy with well-defined rules. They will exercise discretion in accepting the trade and managing it.

For example, a discretionary trader might examine their charts and discover that all of their long trade criteria have been met. They may still refuse to make the trade because the day’s volatility is too low, making it highly likely that the price will not reach the trade’s profit target.

Pros: You are fully committed to your trading. This may be the only advantage I can see to fully discretionary trading. Because of your constant exposure to the market and the level of awareness you are cultivating, you will eventually get a sense of what is going on. However, unless you train that instinct, you will never be able to profit consistently and reliably.

Cons: Why is trading a high-risk activity? Because there are so many variables that influence trading, the market is somewhat unpredictable. There is no such thing as a perfect system that can predict everything, but without one, you risk introducing your random responses into a situation where randomness is already costing you money.

Discretionary Strategies that prop traders use

Global Macro trading


Global macro strategy construct portfolios based on forecasts and projections of large-scale events on a national, continental, and global scale, using opportunistic investment strategies to profit from macroeconomic and geopolitical trends. Global macro strategists make predictions and analyze trends based on a variety of factors, including:

Systematic trading in depth

In this other type of trading, the decision to trade is made entirely by the trading system. Trading system decisions are final. They do not provide the option of declining to make a trade based on the discretion of the trader. The trade is made if the criteria are met!

When a systematic trader examines their charts, they may discover that their trading system’s requirements for a short trade have been met. They will enter the position without further deliberation. This is true even if their “gut” tells them the trade isn’t good.

Pros: The advantage of a systematic trading strategy is that it is immune to the trader’s psychological instincts. The system accepts all trades, regardless of how the trader feels.

Cons: The drawback is that systematic trading is not particularly adaptable. Even in less favorable conditions, trades are always made as long as the conditions are met. More rules can be added to the system to help solve this problem, but this often results in the system excluding some winning trades as well.

Systematic strategies that prop traders use

Moving averages crossover system

The moving averages crossover is one of the most popular systematic trading strategies. If you already know how to plot the key moving averages to determine the trend, you can already predict whether a trend will continue or end. Consider adding a few more moving averages and waiting for the crossover. When the moving averages cross over, it indicates a potential trend change. As a result, this could be your chance for a better or more profitable entry point.

The moving average convergence divergence (MACD) indicator is also included in this system. Other systematic trading system includes triple moving average crossovers as well. It takes into account the difference between two primary moving averages in many ways. That way, you’ll have a better idea of when the trend is expected to end. As a result, it maintains the fundamentals of systematic trading as well as returns. Whether in terms of the mechanical nature of conducting business or risk management.

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