Passing a prop challenge is not an easy task. It is like a difficult path that you must run with obstacles and objects on your way. You have to be able to maneuver through these hurdles with tactics and also with discipline.
Passing a prop challenge is not just about making profits. It is about proving yourself as a disciplined and consistent trader. But this can be more difficult than you think. Maybe even more difficult than just making money.
Here in this article, we will take you through the ultimate prop challenge checklist to show what you need to know to become a successful prop trader.
Rethink the Prop Firm’s Guidelines: It’s More Than Just Numbers
If you are smart enough, you should have noticed by now that the main keyword here is consistency. This is exactly what many traders forget in the process of passing the prop challenges. They think that they only need to focus on profits and making profits. But passing a prop challenge is more than just the numbers.
So, do not get overwhelmed or overly focused on the targets given by the prop firm. Try to see beyond them. We will show you how.
Unveiling the Hidden Rules
There are some hidden rules that you need to go and find. They are not technically hidden. But you have to go to the website and look for them. A great example are the rules about drawdown limits.
You might think the drawdown limit is final and always be afraid of it in the process of the prop challenge. But if you carefully read through all the rules, there are 3 possible conditions for drawdown limit:
- And end to prop challenge
The easiest form is that when you hit the drawdown limit, it will just simply end the prop challenge.
- More observation
Another rule that is seen is that the firm will not end the challenge. But allow a thin margin after the drawdown is hit. During this period, you are under more observation to see if you can bounce back.
- Retry
It is also possible that some prop firms will allow retries. This means, if you hit the drawdown limit, you can start again. But there are also limits to the number of retries.
Evaluating the Profit Target
Always evaluate the profit target from two perspectives: (1) dollar amount and (2) percentage. This will help you develop a better perspective of what you need to achieve and it will also help you stay away from emotional thinking.
For example, if your initial capital is $50,000 and your profit target is 10%, think of it as 10% as well as $5,000.
This way you have the best perspective of what percentage of the total money you need to make and also exactly how much.
The Role of Psychology in Prop Trading Challenges: Manage Your Mindset
You might think that winning a prop challenge and becoming a prop trader is only about trading skills and trading techniques. But, the psychology of trading is just as important as the technique – if not more.
Passing a prop challenge is just as much about your mindset as a trader as it is about your technique. Here is how you can manage your mindset and develop the right trading psychology for prop trading:
Overcoming the Fear of Failure
Fear is a destructive emotion in forms of trading in the forex market. But it becomes bigger in prop challenges. This is because there are actual goals that are set for you by the prop firm that you need to achieve within a limited time frame. This all increases the pressure and in turn also increases your fear of failure.
The first thing to do in order to have the right mindset for prop trading is to overcome your fear of failure.
Cultivating Patience Over Impulsiveness
Prop challenge is basically a game of patience. What does it mean? It means, a prop challenge wants to test your patience just as much as it wants to test your trading skill.
A reliable trader, one who wants to become a prop trader, will not act on impulse without much thought. For this reason, you need to cultivate and develop your patience to wait for the right moments instead of acting on impulse which could lead to even bigger losses.
The Power of Mindfulness
This is an external boost. It is not directly related to trading or the prop challenge. But it can be really helpful.
During the prop challenge, exercise mindfulness practices. This is basically anything that can calm your mind and bring your mindfulness so you are mentally ready for trading. Activities such as meditation, reading, even sitting in silence can boost your mindfulness.
Fine-Tuning Your Strategy: The Art of Adaptive Trading
You already know just how important it is to have a prop trading strategy for the challenge. But having the strategy is not enough. You also need to understand the value of adapting and adjusting your strategy whenever necessary. This is where we get to the art of adaptive trading.
Flexibility vs. Consistency
So far, we have talked a lot about consistency and why it is so important for you to be consistent in prop trading and passing the challenge.
But consistency should not mean unwilling to change. You should be consistent as well as flexible when it is necessary.
Consistency and flexibility should not stand in the way of each other. While it is recommended that traders be consistent and stick to their trading plan, it is also necessary for traders to be flexible.
There are times that markets change of course and your strategy and trading approach should adapt to such changes. It is during these times that you need to show the necessary flexibility and adapt to the change.
The Role of Backtesting and Forward Testing
Being flexible and adapting to changes when you are going through the prop challenge can be difficult. But these two methods can help you before you start the prop challenge. These are backtesting and forward testing. Make sure to do both of them with your trading strategy before using it in the prop challenge.
Backtesting allows you to run a simulation on historical data for fine-tuning your strategy. And forward testing is just using your strategy with a demo account.
A good tip is to try to simulate the prop challenge condition in your forward testing to test your strategy and also your own skills before the actual test.
Risk Management: A Structured Approach to Protect Your Capital
Here we want to take a different look at risk management. This approach to risk management is more adapted to the specifics of prop trading and its challenge.
The Importance of Fixed Risk per Trade
One of the most common mistakes that traders make during the process of a prop challenge is not being able to manage their risk exposure.
It is extremely important that you keep the risk exposure for each one of your trades at a fixed rate. Traders usually increase the risk per trade after they lose a trade because they want to compensate. Also, they might increase their risk rate when they win because they want more wins.
So it is very important to have a fixed risk per trade and stick to it no matter what. A good rule is to keep the risk to 1% of your total account balance per trade and not increase position size more than that.
Scaling in a Controlled Manner
As we said, it is important that you have a fixed risk per trade. But are there situations where it would be okay to increase rate and scale up?
Yes, there are certain situations where it would be okay and even necessary to scale up and increase risk per trade. This is especially the case when you are under pressure to meet prop challenge targets. Also, it might be needed for you to scale up when you are experiencing a winning streak.
Whatever the case might be, remember this about increasing risk per trade: do it very carefully and scale up gradually.
Therefore, if you are thinking about increasing the risk per trade for your new positions, make sure to do it very slowly and in increments.
Continuously Evaluate and Evolve Your Approach
A good mindset to have about the prop challenge is to think of it as the beginning of the journey. This means even if and when you successfully complete the prop challenge, that is only the start of you being a prop trader.
After you receive the capital from the prop firm through a funded account, you will need to prop trade continuously.
This requires you to have an attitude about constantly evaluating and evolving your approach as a trader. Here are a few methods that can help you do that:
Tracking Your Performance
One of the best ways to always be on the path of development and betterment is to have a trading journal. In this way you are able to record and register all of your trades and more importantly you have the opportunity to review them.
You can set aside a certain time such as monthly, weekly, or even daily in order to just sit down and go over all of your recorded trades. This gives you an amazing opportunity to identify patterns in your trading approach and see where it is necessary to make adjustments.
Having a trading journal also has more benefits such as keeping you disciplined and helping you stay away from emotional trading.
Periodic Strategy Evaluation
There is no such thing as a perfect trading strategy. All trading strategies need to be evaluated and adjusted from time to time.
This is another way that can help you remain constantly evolving and developing as a trader. Monitor your trading strategy regularly in order to find out where it needs to be adjusted. It is also a great way to ensure your trading strategy is adapted to the most recent market changes.
Conclusion
Becoming a prop trader is extremely advantageous and can boost your trading into the success you have been looking for. But we all know that in order to become a prop trader, you must first be able to pass the prop challenge proposed by the prop firm. And passing a prop challenge is much more than just trading skills.
There are so many other skills and techniques that you must have to be the winner of the challenge. These include having the right mindset, being disciplined, and showing consistency in your trading process. In this article, we went over the ultimate prop challenge checklist and the small details that traders usually forget in this process. Details that are necessary for success.