Proprietary trading offers traders the opportunity to manage significant capital and earn profits while following structured rules. Firms like Pax Market Funds provide funded accounts to traders who demonstrate skill, discipline, and consistent profitability.
When it comes to trading strategies, two of the most popular approaches are scalping and swing trading. Both have their merits, but which is better suited for prop trading accounts? In this blog, we’ll explore the differences between these strategies, their advantages and drawbacks, and how they align with the goals of prop trading.
Understanding Scalping
Scalping is a short-term trading style focused on capturing small price movements within a very short period—sometimes seconds or minutes. Scalpers often make dozens or even hundreds of trades per day.
Characteristics of Scalping:
Timeframe: Very short-term, often 1–15 minutes per trade.
Frequency: High number of trades daily.
Profit Target: Small profits per trade, relying on volume.
Risk: Requires strict stop-loss discipline to avoid large losses.
Tools: Technical indicators, tick charts, and fast-execution platforms.
Advantages:
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Quick Profits: Small market movements can translate to multiple profitable trades each day.
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Reduced Overnight Risk: Scalpers rarely hold trades overnight, minimizing exposure to unexpected news or gaps.
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High Activity Keeps You Engaged: Frequent trades allow traders to actively manage positions and adapt to market movements.
Drawbacks:
High Stress: Scalping requires constant attention and fast decision-making.
Transaction Costs: Frequent trades may increase spreads and commissions, affecting profitability.
Limited Room for Error: A single mistake can quickly wipe out gains.
Understanding Swing Trading
Swing trading focuses on capturing medium-term price movements, typically from several hours to several days. Swing traders aim to profit from trends or reversals in the market.
Characteristics of Swing Trading:
Timeframe: Hours to days per trade.
Frequency: Fewer trades compared to scalping.
Profit Target: Larger profits per trade, riding trends or swings.
Risk: Requires careful risk management, as trades are exposed to overnight market events.
Tools: Technical analysis, trend indicators, and price action strategies.
Advantages:
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Lower Stress: Fewer trades reduce the need for constant screen monitoring.
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Bigger Profits Per Trade: Riding trends allows for higher potential gains.
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More Time for Analysis: Traders can take measured decisions and avoid impulsive trades.
Drawbacks:
Overnight Risk: Market gaps or news events can impact positions.
Slower Results: It may take days to realize profits, requiring patience.
Fewer Opportunities: Traders must wait for ideal setups rather than taking any small movement.
Scalping vs Swing Trading for Prop Trading Accounts
Prop trading accounts, like those offered by Pax Market Funds, have specific rules and risk parameters. These rules significantly influence which trading style may be more effective.
1. Risk Management Alignment
Scalping requires precise execution and tight stop losses. Prop accounts often have daily drawdown limits, so even small mistakes in scalping can lead to violations.
Swing trading’s larger, fewer trades allow better adherence to risk rules, especially with defined stop losses and position sizing.
2. Profit Target Strategy
Prop firms typically reward consistent profitability rather than sporadic wins.
Swing trading aligns better with this goal because each trade targets a larger risk-reward ratio. Scalping can work, but it demands flawless execution and fast reactions.
3. Account Monitoring
Scalping requires constant screen attention. Traders who cannot dedicate full focus may struggle to meet evaluation standards.
Swing trading allows traders to manage positions methodically, reducing stress while maintaining control.
4. Trading Psychology
Scalping tests reflexes and discipline under rapid market conditions. Emotional errors are costly.
Swing trading tests patience and consistency, rewarding traders who stick to their plans and follow risk management.
Best Practices for Prop Traders
Whether you choose scalping or swing trading, prop traders should:
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Follow Risk Rules Strictly: Never exceed maximum drawdowns or daily loss limits.
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Choose the Style That Fits Your Personality: Scalping suits fast decision-makers, while swing trading suits patient, methodical traders.
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Keep a Trading Journal: Record trades, decisions, and emotions for continuous improvement.
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Use Appropriate Tools: Platforms like MetaTrader 5, provided by Pax Market Funds, support both scalping and swing strategies with advanced order types and automation options.
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Backtest and Demo Practice: Test strategies in demo accounts to refine execution without risking real capital.