To pass a prop firm challenge, you have to read the rules, trade by the rules and keep your emotions under control.
Step 1: Read The Rules
The main reason why prop traders fail when going through a prop firm challenge is that they place a trade that’s against the rules or hit a limit that disqualifies and stops the challenge.
So, how do you prevent getting disqualified? In the first step, read and understand the rules. If you read the rules, you do something that 90% of prop traders don’t do. Most often, there is only a quick look at the basic stats like profit share, costs, available challenges, or account sizes, but that’s different from where the real importance lies.
When I talked to a trading educator a while ago, he said that many of his students complain when they fail or often claim that it is the educator who is to blame. So, I talked to him to evaluate in more detail where this comes from and what to do about it.
He said that the recently measured within the education platform how many traders who join prop firms use the educational content and how many directly get started. Despite the fact that the educator encourages his students to start with the learning process first and then trade live at a later point in time, the students do the opposite.
And for prop trading, it’s surely the same.
So, to have a real kickstart with a real trading edge, start by reading the rules.
Step 2: Understand The Rules
Now that you have read the rules, it’s time to ask yourself if you fully understood them. What exactly does it mean when news trading is prohibited at certain events? What are those events, and when are they? The GDP, Non-Farm Payrolls, etc., get announced at fixed dates, so know about them first and then mark them in your calendar to avoid getting trapped unnecessarily.
If there is a scaling plan that enables you to scale the funded account from $25,000 to $1,000,000, then understand how the scaling plan works.
Another aspect to focus on in terms of understanding the rules is also understanding the terms. Read and understand how you can withdraw your money from the funded account.
Some prop firms take your fees via credit card, ACH transfer, or crypto but only pay out via crypto. What if you want your money via bank wire, but the prop firm does not support this payment type? I think it’s better to know that before, right?
Step 3: Trade By The Rules
Now that you have read and understood the rules, it’s time to read the rules. And please, don’t underestimate the importance. Your emotions will gamble with you once you place a trade, once you make a profit or a loss.
There is the fear of missing out, which might cause overtrading, and there is the potential to increase the leverage once you make a loss, which will increase the chances of blowing up the account finally. To pass your prop firm challenge, you are now at the point where it really counts.
Trading by the rules sounds simple, but it’s not because of emotions. Trading is not rational. Instead, trading is emotional.
If your maximum drawdown is set at $-2,000 and you are currently at -$1,800, do you think that you can stop trading for the day and start over tomorrow? Good if you can!
Something that can help you learn to control emotions is a paper trading platform. Here, you can start with a virtual amount trading and see how it goes. Don’t reset your paper account, trade it always based on the rules you have with your prop firm and this way you quickly find out how good you are reading, understanding and following the rules.