The first way is typical and usually leads to average, which is draft every year like how everyone else does. You will be average unless you hike up your XP sliders over time and you spend wasted cap money that could have went to a player that mattered.
Whichever kind of rebuild you are doing, drafting past the 4th round 99% of the time does not pay off compared to trading, so try and stay away from doing it when you can, even if you are in a realistic rebuild. Even trading past the 2nd round in most cases will fail unless there is a true diamond in the rough.
During your first year or two, you should build up wealth by using your Draft Currency to trade for players who are young and a shoo-in for success, or you can try and swing for that X-Factor 85 overall rookie QB that you will probably never get. There is no problem with drafting players but timing is key as to when you do it as well. Don't gamble for the potential of great players, while also locking in the guarantee of big contracts that you owe regardless if they are any good or not.
The CPU makes trading for good rookies after year one hard but it eases up when they turn into a one-year pro. The Madden 20 system thinks of two main ways of most importance in the trade game. That would be rookies and high overall players. A one-year pro no matter how good they are going to be is neither of those two things. They are not a rookie nor are they a high overall just yet because they are still young. Start your Rebuilds off by bargaining for a player that will eventually be "Impossible" to trade for.