How do prop traders get their trading ideas?

Proprietary traders, or prop traders, often face the challenge of finding good trading opportunities to stay profitable. To succeed, they need to combine strong analysis, smart strategies, and creative thinking to come up with high-quality trading ideas. All these need to happen consistently but are often overlooked.

Too many traders lack consistency when daytrading. In this blog post we will look at the methods that seasoned prop traders use to identify opportunities across various markets, including stock indices, commodities, and forex. These methods will help you develop a systematic approach to your daily trading routine.

Trading ideas are essentially hypotheses or strategies for entering and exiting the market at given price points or under specific conditions. Most successful traders will have defined parameters of when to take or discard a trading idea or trade setup. These rules should be adhered to at all times as a deviation from the rules can lead to significant setbacks.

For prop traders, generating solid trading ideas is essential to profitability. Day trading requires the need to identify multiple high quality trade ideas if possible. Solid trading idea will help prop traders to:

• Capitalise on market inefficiencies.
• Improve decision-making consistency.
• Optimise profits while managing risks effectively.

Discipline is key to being a successful prop trader. One key observation from the prop firm space is many traders adhere to their rules for a trade idea in the evaluation phase but discard their rules after qualifying for an account. This has resulted in many prop traders not making it to the first payout after qualifying for their accounts.

You can refer to our Challenge Rules and examples of how to apply the rules here: FAQs

Understanding where to look for these trade ideas and developing a step-by step guide on how to cultivate them is the first step in achieving longevity as a prop trader.

The foundation of any good trading idea starts with a defined trading strategy. Your strategy should outline the types of trades you’ll take and under what conditions.

Each strategy has its pros and cons and no strategy is 100% effective. It is important that the strategy lines up with your risk profile. Once you are comfortable with the strategy outline, you may refine your strategy in the following ways:

1. Backtest it using historical data.
2. Use demo trading accounts to test in a risk-free environment.
3. Adjust parameters to optimize for current market conditions. (this could be simply taking less risk during periods of high volatility or taking into consideration geopolitics and how they may affect your trading setups).

There are a host of trading strategies one could use and all of them will have variable levels of success. Some strategies can include both technical and fundamental analysis while others make use of just one. Either way, the results and consistency are more important than the strategy that you choose to employ.

For help with developing a strategy, you may want to visit the OANDA Labs page and view articles like,

How moving average crossovers help identify market trends and signals?

or Granville’s Rules Trading: Buy Signal 1 and Sell Signal 5 Explained.

It is paramount to stay up to date with the latest economic data releases which could impact your potential setups. This is even more important as many prop firms employ a ‘no news trading’ rule which usually applies to high impact data releases. To find out more about news trading restrictions, read FAQ.

Platforms like MarketPulse by OANDA and TradingView provide real-time economic calendars, making it easier to track major events.

Using data as a means of confirming your trade setup may also prove beneficial. For example, if you have a short setup on EURUSD and news comes out that the Federal Reserve will hike interest rates soon, this should work in your favor as the US Dollar should appreciate. This adds a layer of confluence when evaluating trade setups.

Listening to experts can give you helpful insights and inspire new ideas. Analysts take a close look at industries and the economy, sharing knowledge that might spark an interest in a potential trade setup.

This serves to compliment your strategy and should not be seen as a replacement for your own trades or strategy. If a trading idea/setup of yours lines up with what analysts and thought leaders are saying, this should in theory lead to a higher probability of success.

Resources such as Bloomberg, FXStreet, MarketPulse, Reuters etc may all be valuable resources to gauge the feelings of Analysts and Thought Leaders.

This has become a popular phrase in recent years as prop firm trading has gained traction. This is usually something which market participants believe give them an edge over markets and help them to be sustainably profitable.

In the case of OANDA Prop Trader, I have a more literal meaning for this. The reason is simple, and it has everything to do with the range of tools available on the OANDA Labs site.

Under the tools section, OANDA have made a host of data and analytics tools available to market participants which I believe may be the ‘edge’ needed to help traders remain profitable.

Among the tools available are the order and position book, currency strength meter, correlation tool and sentiment chart. These tools usually have an accompanying article which can help market participants combine it with their strategy to achieve a higher probability of success.

Articles that explain how to incorporate the tools into a trading strategy::

1. Using the Currency Strength Tool for trading set-ups in the FX market
2. Using Sentiment Tool as a trading set-up

Sometimes the best trading ideas emerge from collaboration. Engaging with other traders in forums or groups can expose you to different perspectives and strategies. This may also lead to a wider range of opportunities as different traders may introduce you to different pairs and instruments.

This is a catch-22 for me as I have had the tendency in my early trading days to at times choose the opinion of the collaborators over my own. This should not be the case and this should serve in a similar guise as the views of Analysts and Thought Leaders.

Another method in which traders may find the ‘edge’ is by utilising the ever growing suite of AI trading tools.

Tools like algorithms for analysing market sentiment, software for spotting patterns, and platforms for testing strategies can give traders an advantage.

Here are some examples of AI tools:

• Kavout helps predict stock performance.
• Tickeron creates trading signals using AI.
• QuantConnect lets you design your own trading programs.

These tools help traders handle large amounts of data quickly and find patterns that people might miss.

To succeed as a prop trader, you need more than just an idea. You are on a journey in which you must fine-tune your routine and stick to it with discipline. Create a clear plan, stay updated on global news, do thorough research, and use advanced tools to spot chances that match your goals.

Great traders never stop learning. Stay curious, keep improving your methods, and adapt your strategy as markets change.