Features to Look for in the Prop Trading Firms for Swing Traders

Key Highlights

Swing trading differs from day trading in that its focus is on capturing broader market movements over extended timeframes. It’s a trading approach that values planning, patience, and the innate ability to hold a position through fluctuating market conditions. 

For prop traders trying to develop consistent profitability in funded trader programs, the following are features to look for in a firm:

• Overnight and weekend holding
• Drawdown behavior over time
• News & swap considerations

Prop Trading Firms for Swing Traders

Swing trading is a trading method that works by capturing price movements over extended durations that could cover multiple days, weeks, or months. In day trading, you’re required to close all open positions before the end of the day. But for swing traders, this isn’t the case, as they can hold open positions overnight to capitalize on significant price swings and extended market trends. 

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When I joined the trading world, I learned that there exist significant differences between the various modes of trading. For example, the core principle behind becoming a successful swing trader lies in being able to identify and ride through major market trends. You see, this is different from what I was used to in day trading, as activities there primarily involved capitalizing on short-term noise.

My advice to anyone considering becoming a professional swing trader is to focus on daily and weekly chart patterns. Placing your focus on these patterns will enable you to catch the substantial price movements that are likely to escape the attention of an intraday trader. And I think I should add that market psychology often works in favor of swing traders.

The reason for this is that institutional investors tend to move billions of dollars over a prolonged timeframe. What this means is that when hedge funds and banks establish positions, the trends they create are powerful and will typically last a few weeks if not months. Read on to learn how to find the best prop trading firms for swing traders. 

Overnight & Weekend Holding

If you have to close open positions at the end of the trading day or every Friday, this will disrupt lots of good setups. Swing traders benefit from working with prop trading companies that allow them to hold open positions for extended durations. And as the name suggests, this trade methodology tries to capitalize on emerging price swings.

Many prop trading firms have strict rules on the length of time a trader can hold an open position. For example, you’ll find that there are firms that require their traders to close all positions by the close of the trading day, or before the start of every weekend.

Looking For Top Prop Trading Firms for Swing Trading ?

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Looking For Top Prop Trading Firms for Swing Trading ?

Join the Best Prop Firm

While such firms do so to safeguard their capital, imposing such a requirement goes against all known swing trading strategies. A firm that does this will be effectively preventing its swing traders from capturing the intended swings. The best prop trading firms for swing traders are those that enable them to hold positions overnight, including over the weekend, eliminating the need to close open trades.

Risk Management for Overnight Positions 

Overnight position management acts as the cornerstone of successful swing trading. Swing traders need to master the unique positions and risks that come with holding positions overnight. To help you better manage your risk during a trading session, consider deploying the following:

• Gap risk management: Monitor upcoming earnings dates and economic calendars. Learn to use protective options and reduce position sizes before major news events.
• Stop loss placement: Place stops beyond key resistance/support levels to prevent a false breakout. Never risk more than the predetermined percentage, and allow for overnight gaps per trade.
• Position sizing formula: Don’t risk more than 1% to 2% of your available capital on a trade when looking to open an overnight position. And avoid using arbitrary lot sizes to calculate position size. 
• Profit-taking strategy: Try to lock in your profits systematically instead of hoping to land on a perfect exit. Also, make sure to trail stops on all remaining open positions. 

Drawdown Behavior Over Time

The type of drawdown in use by a prop trading company is a very important consideration. Ideally, only consider partnering with firms that provide a balance-based drawdown rather than an equity-based drawdown. In the latter, the chances of your funded account getting terminated because the profits have pulled back are quite high. 

With the balance-based model, it will mean that the firm has rules which will prevent you from getting penalized for letting open trades run. For example:

Let’s say you have a funded account using an equity-based drawdown and that has a 5% daily drawdown. If the account has a starting balance of $100K and you’re able to make a profit of $10K on the day’s trades, it means you’ll now have $110K at your disposal. As this is happening, the drawdown limit will also shift, and increase upwards to become $104.5K.

Using the same scenario, an account using a balance-based drawdown and a 5% daily drawdown will now have a $95K starting balance, making it more favorable to the trader. 

News & Swap Considerations

Some prop trading firms have banned swing trading as these trades often overlap with major news events. For those that allow it, you may find that they have placed strict conditions on what you can or can’t trade. Examples of news and fundamental considerations every swing trader should make include:

• Sector rotation: Sector behavior can change due to high interest rates. During such times, rate-sensitive sectors such as utilities, real estate, and tech are bound to behave differently than they normally would on normal trading days.
• Data sensitivity: Swing traders need to understand that economic releases are much more than background noise. GDP and labor reports are “trade-killers” capable of breaking your technical patterns and triggering fast, unwanted reversals. 
• Geopolitical shocks: These refer to unexpected and fast-moving geopolitical news and events. Prop trading firms may restrict news trading as such shocks require that the trader have a flexible approach. These events are known to bring about substantial price gaps. 
• Earnings and corporate events: If you’re a stock trader, then you know just how important earnings reports are and the kind of impact they can have on open positions. Prop firms recommend that you exit or reduce your positions ahead of their releases. 

When it comes to swap considerations, you’ll want to confirm that the prop firm has a swap-free account. A swap refers to the difference between the bid and ask price. No swaps, therefore, means that there will be no cuts in your profits. Always confirm that the prop trading company’s news and swap policy fits your trading approach. 

Conclusion

Many prop trading firms use a model designed for day traders, rather than swing traders. But while this may be the case, there’s no reason why you shouldn’t remain consistently profitable. When you spot the hidden traps, understand the trading rules, and align with a prop firm that complements your trading style, you significantly increase your chances of recording a good performance. At Audacity Capital, we are a prop firm that believes in doing things differently. Click here to check out our flexible funded challenges and get a chance to learn about our profit splits, payout rates, and stand on news trading. 

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