Compound interest is the most powerful force in the universe”, as Albert Einstein said. Warren Buffett took a full advantage of it. You can’t ask a pity him about compound interest in trading. Buffett specialises in long-term investments. Jesse Livermore would be a good fit. But most likely they would both say that trading strategy should be simple, and risk management should give a room for error.
The advice is simple. But for the rest of us, it’s too blurry. Although it is these two recommendations that can make the path of a prop trader sustainable. So, that he or she, following Buffett and Livermore, also harnesses the power of compound interest. Below, we outline five proven trading strategies and best practices enriched with insights from SpiceProp analysts.
General Principle
The practical application of the principles outlined above gets down to the following. The risk in a trade should be considered as the trader could make the number of trades stipulated by the trading pattern without reducing the volume. Usually, prop traders agree on the value from 0.25% to 0.50% of the balance.
Patterns
Traders are usually obsessed with trading patterns. In reality, this part of trading is most simple. Much more difficult is to refrain from breaking the rules of risk management when trading is profitable or lossmaking.
- Buying Stocks from Trend Support of the Ascending Channel (D1)
Stocks could provide one of the simplest and most reliable patterns for buying from the support line of the uptrend. When the channel is established on the daily chart and if its lower margin is reached, a buy position could be opened.
To increase accuracy, you can apply additional filter. The index, which includes this stock, should be steadily growing at the moment of purchase.
- Buying Shares on Retest of a Downtrend (D1)
The second reliable pattern allows you to get stocks on a reversal. Thus, the stock index should be growing, while the stock price should break through the trend resistance and retested it. At the time of the retest, buying can offer one of the best profit-to-possible-loss ratios.
- Buying a stock after a good quarterly report (D1)
Another profitable way to buy stocks is based on statistics and market’s underperformance. After a strong quarterly report the stock maintains positive momentum for a few days. Weakearnings report provides the opposite momentum.
Overbought, Oversold Tensions (H1, H4)
The currency market is more profitable compared to stocks. Technical overbought and oversold tensions are contributing to technical patterns. You can identify it by oscillators. An H1 or H4 chart will help you. However, through March-June and September-December trends are shaping the market, oscillators do not perform well.
Alligator and Fractals (H4, D1)
One of the most famous trend strategies was developed by Bill Williams. It would be better to use it during the trend for currency pairs or commodities.
Proprietary trading demands of course a combination of strategic insight, disciplined execution, and robust risk management. According analysts of SpiceProp company a variety of educational trading challenges, such as Black Pepper, Sweet Pepper, Chilli Pepper, Jalapeño, and Mini Pepper, catering to different trader preferences and risk appetites. The diversity allows traders to select programs that align with their individual strategies and goals. The Jalapeño program for example offers traders immediate access to simulated funded accounts without the need for preliminary challenges.
Customizable challenge add-ons enables traders to commence trading activities promptly, facilitating quicker engagement with the markets and enhance their trading experience by adding features such as increased total drawdown rates, 150% refund options, and expedited withdrawal processes. These customizable add-ons provide flexibility and can be tailored to individual trading strategies.
SpiceProp is an educational platform specialised in training in trading on financial markets, including proprietary trading. It offers a wide range of educational programs. The company unites practicing traders, analysts, authors of books and their own methods.