October 16, 2023

How to Pass a Prop Firm Challenge Account

If I got a dollar for every time someone asked me this as a question like “how do you pass a prop...
A picture of laptop screen with a trading charts on the screen

If I got a dollar for every time someone asked me this as a question like “how do you pass a prop firm challenge?”, I would most likely be the Richest Trader in our time. I’m not even kidding “bruhh” lol!

This is a question for many traders because it appears as a big hurdle to cross in the retail trading world, but if you look at it with more insight, is passing a prop firm really the issue? Think about it for a moment. I rather believe that many traders are looking for an unhealthy shortcut in this industry to get rich quick, that’s why they waste more time doing the wrong things. Oh yes, I said that! Come to think of it, trading a funded account and being able to withdraw steadily is life-changing ooo…. it’s a big flex! Wait… did you just read that line? that’s my point! passing a prop firm challenge account is one thing, keeping a funded account as a consistent stream of income is another thing.

Here’s the interesting part, the same formula I’m going to be sharing with you today to pass a prop firm challenge account is also all that you need to keep a funded account as a consistent income stream. “ARE YOU READYYYYY????” Well, if you said “YES!”, you already have my attention!

We are going to look through the few key things you need to pass a prop firm challenge and keep a funded account. These things work! trust me, if I charged you to read this, I would have offered you a Money-back guarantee! that’s how confident I am of this. Okay, I’ve whetted your appetite enough, let’s get into this gist.

YOU NEED: A working strategy, A good risk to reward ratio for profits, a solid risk management template, a detailed trade management plan and the secret weapon…. a sound trading psychology.

Relax, I’m not going to leave you to assume what I mean on each of them so allow me do the explanation, before all of that, the previously listed must be in your Trading Plan. If you don’t have a trading plan, then you are one of those people looking for an unhealthy shortcut that I talked about earlier in this post. Okay, enough stalling, let’s get to it!

Every working strategy has its statistical advantage which we commonly call “edge”, your trading strategy is a tool to fetch you profits from the market, you are the executor not the tool, and for your strategy to have an edge, it must be rule-based, that means you can’t bring up some random, intuitive approach to the markets and call it a strategy. It must be rule based on certain proven concepts and must have been back tested at least over a 100 sample trades, to give you an idea of the win-rate or strike-rate, so that you can trust it with a proper expectation of the results you should get after a certain number of trades in certain market conditions.

What moves your trading strategy to a trading system is that it can offer you a certain range of rewards when you risk a certain amount per trade. Through your back-testing, you will figure out the average RR per trade. You need to fully understand the strengths and weaknesses of your trading system so that you will have a proper expectation and execute with confidence. One major reason why a larger percentage of trader’s fail prop firm account challenges is due to a lack of confidence because they don’t really understand their trading system enough to trust it. A sign you don’t understand or trust your system is when you start looking for a “new approach” during losing streaks. How then will you know when your system is performing normally or abnormally? Stick to one thing!

A key factor I always emphasize in trading is a solid risk management template and this differs per person. If your trading system offers you a 50% win rate after 20 sample trades with a minimum RR of 1:3, it is only wise that when trading a prop firm account with a max drawdown of 12%, you risk 0.5 - 0.7% per trade because after losing 10 trades, you will only be 5-6% down and the other 10 trades which are winners should get you back 8-10% positive on that account due to your average risk to reward of 1:3. That alone will pass a first phase of the challenge and then easily will scale you through second phase if you are doing a two-phase evaluation. It all begins with understanding the statistical advantage of your trading system and what risk parameters will work best for you to sustain the account. Remember that to be successful, you have to play the long term game.

Trade management is one factor that is often overlooked, but it’s the cure to greed and securing your full rewards from the market often. There are certain trades you get into and you’re in good profits, it probably has even delivered your full reward, but it has potential to deliver more, trade management is what will help you secure what you have already and still benefit from the larger potential of that trade if it delivers more. This has to do with taking partials, breaking even, and knowing when to do either of them. I’ll give you an instance, you are in a trade that has offered you 30 pips and you risked 10 pips (classic 1:3 RR) but the trade has the potential to deliver 90 pips. The first thing to do is actually breakeven and then depending on the lot size used, you are either going to close the entire position or take out 70% of it, that way, if the trade delivers some more, you can still get something out of it, but you didn’t entirely lose what the market delivered in the initial in case it reversed. We will investigate this some more in the future but for now, I believe you have an idea of what I mean, it’s a dynamic concept so I’ll share more insights in another post on what trade management practices to use for your trading system.

I call this one the secret weapon because without it, you can’t succeed in this trading industry. The skill of trading is simple to learn, the psychology to execute the skill is what makes trading look hard and it’s the reason why many have not made progress and are still struggling in their journey. I cannot uncover everything about trading psychology in one paragraph but here’s what you need to know, if you can effectively do the above and create a comprehensive trading plan for yourself out of what I have shared so far, your trading psychology will be 10 steps ahead the average trader, that I can assure you. Trading psychology like the term states, has to do with how you feel and think before a trade, during a trade and after the trade. This is very important for your growth as a trader, but that growth can only come through another source that will reprogram how you think and feel as a trader. It is important that you read recommended books on trading psychology and watch trading psychology content from experienced institutional traders who have a track record in that area of sound trading psychology. You have probably heard stuff like “trade alongside the institutions if you want to be successful”, it’s even more important to “think like the institutions” so you have a more fulfilling and deep learning journey as a trader as you produce lasting success and results.

If you have stayed up to this point, you’re the real MVP and you’re serious about changing the game for yourself. I will uncover more in future posts but for now, this is where I wrap up and say thank you for sticking with me through this. I wish you all the best in your trading journey and I believe I have been able to open your eyes to insightful stuff that will help you pass many prop firm account challenges and keep you funded for a long time. Stay chill, it’s a marathon not a sprint, success is predictable if you do the right things.

Till we meet again, Happy Trading!
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