Prop Trading is tricky. Especially when you are new to the scene, with all those rules attached, it’s hard to even a veteran trader to come out unharmed from the market with a prop firm account. So, how can you avoid blowing your prop firm budget? After analyzing decades worth of data, it could be seen that only the most consistent ones make the best out of the markets, and based on that, here are 5 tips to pass your prop firm account.
You can’t apply the conventional methods of handling a regular forex trading account to a prop trading account because usually regular accounts don’t have any rules or regulations attached to them. But on the other hand, a prop firm account does.
The basic rule of any prop firm account is they limit your drawdown at 5% daily and 10% monthly. And, there are usually 2 phases of challenge involved until you get your hands on the real account. Typically, to complete phase 1, one needs to make a minimum of 10% of their account balance within a maximum of 30 days period. To complete phase 2, one needs to make around 5% of the account balance. These targets can vary from prop firm to prop firm, especially now that there is too much competition.
Divide and Conquer
You will get at least 4 trading weeks in each phase. So, ideally, you should divide the risks among each of your trades. For example, there is a drawdown limit of 5% each day. So, make your plan in a way that your drawdown never exceeds more than 2% in a single day and each of your trades shouldn’t carry more than 1% of your entire account size.
Even if you target a 1:2 risk-to-reward ratio, which is pretty basic. You will only need 5 winning trades to complete your phase 1. Now, you can say that even 1% is too risky. Yes, we do agree that 1% is also kind of risky but you have to remember that prop firms come with a time cap. Unless you are a little aggressive, you can’t make it within 30 days or 4 trading week’s period. And, there is no guarantee that you will win on 5 out of 5 trades, that would be daydreaming at best. So, this divide and conquer method is going to help to diversify your risk among trades and days and pass your prop firm account.
Ground Work; Choose A Firm That Suit Your Trading Style The Best
There are going to be many lucrative offers and promotions around when you will look for the firms you want to trade with. But, you have to keep in mind that not every firm is going to suit your needs. The prop firm you will probably go with might have a rule that prevents you from holding your trades overnight or over the weekend. If you are a swing trader, then that might hamper the performance of your trades. On the other hand, if you are a scalper you might want to avoid any firms that have a restriction on closing trades early. Also, you will probably want to check what kind of trading platforms your preferred prop firms offer and how efficient their support is.
And, in this particular case, reading plays a big role. If you don’t properly read a firm’s rules and conditions prior to subscribing to their funding models then we are safe to say that you have freaked up at the very beginning. Read, and enquire about the firm you are interested about. Join any form of community that they might have and also check the trust score on trust-pilot.
Avoid Trading News
Many will tell you that they have made THAT amount of money trading news. You will also stumble across many success stories built around news trading. Do not fall for that. News trading can take away the profits you made over a long period of time within a few minutes if you are not careful.
News trading does not strongly fall under any valid trading strategy according to us. The lairs of extreme risks involved in news trading are unimaginable. And, the stress that comes with news trading will definitely hinder your sound judgment capability when you see the charts moving crazy along with your money on the line.
Set Your Targets And Trading Method
It goes without saying that 10 minutes of preparation can save you hours’ worth of stress and self-pity. Particularly when you are in drawdown. Each trading style has a different approach toward the risk involved. Whatever strategy you go with make sure that it doesn’t conflict with your personality. Otherwise, it might get a little hard for you to reach your milestones.
I personally like day trading, cause whenever I have a position running, I have the tendency to go check my terminal every once in a while and it overall impacts my day in a negative manner. So, I decided to go with a strategy that would bring me sufficient profits from trading in lower time frames and let me close my trades within a few hours. Decide on the strategy you want to approach the market with and also set your risk parameters accordingly, this will help you pass your prop firm account.
A Routine; To Make You Consistent
Discipline is the underlying spell of every profitable trader. Consistently maintaining a set routine for your executions will give you a mechanical edge over the market. And a mechanical reaction toward the market’s movement will only make you consistent to pass your prop firm account
Other than that it will make your learning process efficient by several folds because you will be seeing and interacting with the markets at a specific point in time, every day. And, it will also make you a master of that specific time of the day. As they say, the master of one is better than the jack of all trades. Over time, as you gather experience, you will parallelly turn into a consistently money-making machine.
Regardless of whatever account size you choose, if you are disciplined sooner or later you will make consistent money. But most of the newbie traders are looking for some quick cash and that mentality is the only poison that works against them and gives you an advantage when you develop the antidote of that poison which is discipline.
Give yourself positive affirmations whenever you have the chance, Meditation and eating healthy are also very important as body and mind are connected and trading is mostly about psychology.
Hope this will help reduce the scarcity of advice on you your trading journey. Let us know what else you want us to cover.