Proprietary firms or prop firms provide traders with large amounts of capital even without facing any personal risk. That’s why everyone wants to pass a prop firm challenge using swing trading. Swing trading is perfect for prop firms because it helps you take advantage of larger market moves without sitting on your screen 24/7. It also provides you with a more stress-free environment that mostly comes with scalping or day trading. But passing prop firms’ challenge is not an easy task. Traders must have solid strategies to pass the test and that works in real market conditions and aligns with the rules of most prop firms. So let’s discuss these strategies for swing trading.
Understanding Prop Firm Challenges
Before diving into strategies, let’s talk about what are prop firm challenges. Prop firms usually have strict rules including daily drawdown limits, overall loss limits, and profit targets. Most challenges require traders to hit a profit target of typically 8-10% within a set period while keeping drawdowns in check. This means your strategy needs to be profitable but more importantly disciplined. You can’t just throw trades around and hope for the best. You need a plan.
Why Swing Trading Works for Prop Firm Challenges
Swing trading sits right in the sweet spot between day trading and long-term investing. It allows you to capitalize on trends without worrying about catching every tick. Here’s why it works so well for prop firm challenges:
- Less Stress: You’re not staring at charts all day.
- Better Risk Management: Larger moves mean better risk-to-reward ratios.
- Avoids Overtrading: Prop firms love traders who stay disciplined.
- Fits Challenge Timeframes: Most challenges last a month or more then which is perfect for swing trades that typically last a few days to a few weeks.
Now let’s see the best swing trading strategies that can help you crush your prop firm challenge.
Trend Following with Moving Averages
If you like keeping things simple, trend following with moving averages is a great place to start. The idea is straightforward to ride the trend and avoid fighting the market.
How It Works:
- Use the 50 EMA (Exponential Moving Average) and 200 EMA on the 4-hour or daily chart.
- When the 50 EMA crosses above the 200 EMA you need to look for buy opportunities (bullish trend).
- When the 50 EMA crosses below the 200 EMA you need to look for sell opportunities (bearish trend).
- Use pullbacks to enter trades instead of chasing prices.
- Set stop-losses below recent swing lows for buys or above swing highs for sells.
Why You Need It:
- Helps you stay in line with the overall trend.
- Eliminates guesswork because you only trade when the trend is clear.
- Works across multiple assets like forex, stocks, indices, and commodities.
Support and Resistance Swings
Support and resistance levels are pure gold in swing trading. They show you where price has historically struggled to break through or where it keeps bouncing back.
How It Works:
- Identify key support and resistance zones on the daily and 4-hour charts.
- Wait for the price to react at these levels.
- If the price bounces off support then look for a buy entry.
- If the price rejects resistance then consider a short position.
- Use confirmation like candlestick patterns (pin bars, engulfing candles) to increase probability.
- Place stop-losses just beyond the key levels.
Why It Works:
- These levels act as natural entry points with high probability.
- They give clear invalidation points and keep your risk controlled.
- Works well in both trending and ranging markets.
Fibonacci Retracement Strategy
This one’s a favorite among pro traders because it helps pinpoint ideal entry points in a trending market.
How It Works:
- Identify a strong trend (higher highs and higher lows for bullish trends, lower highs and lower lows for bearish trends).
- Use the Fibonacci tool to measure the most recent impulse move.
- Focus on the 38.2%, 50%, and 61.8% retracement levels for potential entries.
- Wait for the price to retrace into these levels then look for confirmation to enter like bullish engulfing candles and hammer candles.
- Set stop-losses below the last swing low for buys or above the last swing high for sells.
Why It Works:
- Helps you enter on pullbacks instead of chasing trends.
- Combines well with other indicators like moving averages and support/resistance.
- Helps with tight stop-losses and improves risk-to-reward ratios.
RSI Divergence Strategy
The Relative Strength Index (RSI) is great for spotting potential reversals before they happen.
How It Works:
- Use the RSI (14) on the 4-hour or daily chart.
- Look for divergence between price and RSI as price makes a new high but RSI doesn’t confirm it = bearish divergence; price makes a new low but RSI doesn’t confirm it = bullish divergence.
- Enter trades when divergence appears near key support/resistance levels or trendlines.
- Place stop-losses just beyond the recent swing high/low.
Why It Works:
- Helps you catch early reversals with high probability.
- Works well in combination with other strategies like Fibonacci and support/resistance.
- Prevents you from buying tops and selling bottoms.
