Being a successful prop trader is tough. There’s so much to learn and do, and if you want to make it in this competitive field, you’ve got to be dedicated.
But being dedicated isn’t going to cut it. You’ve got to know how to research, manage risk, and maintain good trading psychology. And that’s just the beginning! So how do you become the best prop trader you can be? Here are some tips:
Research, learn, and understand the markets
One of the best ways to succeed in any field is by learning as much as possible about it. The same goes for prop trading, where you’ll need to do some serious research before you start trading on your account. You can begin by reading books about prop trading strategies and risk management, but many online resources can help you get started with this task.
It would help if you also learned everything you can about the specific assets or instruments that are traded on your platform so that they make sense when they appear in market data streams during live trading sessions. It may take some time for you to become familiar with all of the risks involved with prop trading, but it’s worth it because this knowledge will help prepare you for any potential pitfalls.
Learn to manage your risk
Risk management is an essential part of trading, and if you don’t manage your risk well, you will likely not be able to survive as a prop trader. You can think of risk management as allocating funds so that the potential losses are less than the potential gains. There are many different ways a prop trader can manage their risk, such as sizing up positions or hedging them with other positions.
The first step in managing your trading capital is deciding how much money to put into each trade. The general rule is that you should never invest more than 1-2% of your account on any single trade or 25% overall (assuming it is a portfolio strategy). If this isn’t possible, then ensure that all trades have enough equity so that they don’t get liquidated by big moves against them.
Figure out what strategies work for you
The most important thing you can do as a prop trader is to find a strategy that works for you and then stick to it. It’s tempting to try new things, but it’s better in the long run if you develop a strategy that plays to your strengths and then makes sure that it’s working by backtesting it and keeping track of how many trades are profitable overall.
You should also always be aware of everything happening in your market environment – don’t obsess over it, though! It’s okay if, some days, nothing goes right; focus on improving yourself as a trader one step at a time until one day everything starts clicking.
Finally, don’t be afraid of changing your strategy if something doesn’t seem like its working anymore or isn’t giving good returns anymore; there may be something else waiting for you!
Follow the rules
Setting up a trading plan is the first step in learning to be a good prop trader. Without one, you won’t know what risks you’re taking, and you won’t have any idea when it’s time to get out of a position. After all, being able to follow your own rules is one of the most important traits of successful traders.
Once you have your plan together, stick with it! Whether that means sticking to margin requirements or not deviating from whatever parameters are built into your strategy, following through on this principle will pay off for anyone who wants to become an elite prop trader. If it helps, think about it like this: if there were no consequences for deviating from your plan, why bother?
You can’t always expect things will go according to plan; that’s just part of life. However, if something goes wrong, then don’t try and overcompensate by making bad decisions (or panic!). Instead, focus on how best to respond to accomplish positive outcomes without breaking any rules along the way; remember that everyone makes mistakes sometimes but what matters most is how they move forward after those mistakes occur rather than dwelling on them forever afterwards.
Nurture good trading psychology
As a prop trader, you need to be able to handle losing trades. Losing trades are part and parcel of the job, so it’s important to develop good trading psychology. If you want to be the best trader you can be, here are some guidelines for nurturing good trading psychology:
- Be resilient when things go wrong. You’re not going to have perfect trading days every day; sometimes, losses will still occur even after years of experience as a prop trader. Keep calm and stick to your plan when these mishaps occur; don’t let them get you down!
- Have the discipline to stick with your plan. When something unexpected happens during a trade (as it inevitably will), remember that sticking with your game plan is more important than reacting emotionally and making bad decisions based on fear or greed. Sometimes these emotions contradict some aspect of what your strategy calls for at that moment!
- Stay focused on long-term goals rather than short-term ones like “I need this trade right now.” It’s very easy for traders who aren’t experienced enough to think too much about short term gains instead of focusing on getting better at their craft every day through practice.
Track your performance and celebrate wins
You’ve got to keep track of your performance and celebrate wins. One of the biggest mistakes prop traders make is that they don’t celebrate their successes and dwell on losses. When you have a good day, it’s really important to acknowledge it and appreciate it for what it is. The same goes for when you have a bad day—don’t feel like you need to let yourself get too down about losing money because everyone loses money sometimes.
Always keep an eye on your P&L (Profit & Loss). This is one of the most important things for any trader. If you don’t know where you stand with your P&L, how can you know what trades work for you? Or which ones are not? There are plenty of tools that will help you track your P&L (and even automatically update it).
Suppose there’s anything I’ve learned in my years as a prop trader. In that case, it’s that the best way to improve your trading skills is by reviewing them after the fact—and then writing about how things went well or poorly so that next time around (and there will be a next time), you can learn from past mistakes or successes instead of repeating them over again.
That’s it for this article, if you enjoyed this one then be sure to check out Top 5 things successful prop traders do.
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