Last Updated on July 6, 2024 by Richard Gibson
Successfully passing a prop firm challenge can change your trading career. Prepare to unlock your full potential with this must-read guide.
I am Richard, a senior trade analyst at MyForexReport. In the past few years, I have passed many prop firm challenges and some have failed. Based on my prop trading journey and strategy, I have written this article on How to Pass the Prop Firm Challenge. It’s time to fulfill your prop trading dreams!
Top Tips To Pass a Prop Firm Challenge
To pass a prop firm challenge and gain access as a trader, there are some significant key tips to remember.
1. Choose Trusted and Legit Prop Trading Firms:
The first thing you should do is do thorough Firm research. Go through their online reviews and ratings, and learn about their history and credentials. A legitimate firm will be transparent about its operations and fees. They will also provide resources to help you succeed, not just take your money. Currently, prop firms like FTMO, 5ers, E8, TFT, and RebelsFunding are doing a good job.
2. Practice With Free Trial Accounts
Many prop firms offer free demo accounts to practice with virtual funds. Before purchasing a package, use these to familiarize yourself with their platforms and rules. You will gain experience with stop losses, profit targets, and position sizing.
3. Getting Started With a Small Challenge:
I recommend signing up for the cheapest package to get started. The ‘Intro’ or ‘Beginner’ level packages are great for this purpose. Putting less money at risk allows you to learn how things work. Once you gain confidence and skills, you can purchase a large challenge account.
4. Follow the Prop Firm Rules:
Read all the firm’s rules and policies carefully before trading. Trading hours, eligible stocks, position limits, and fees are the most important aspects to know before trading. Payouts may be declined or your account terminated if you do not follow their rules & guidelines.
5. Always Use Proper Risk Management:
No matter the challenge, apply risk management principles. To pass the prop firm challenge, risk management is essential. Prop firms will constantly evaluate the risk you are taking and the profit you are gaining against them. Even with small risks, you can make a consistent profit margin. With 0.50.0.40 risk management, I make 13% on each entry. Sl will always hit any strategy, but risk management will always protect your money from a large downturn.
6. Start With a Solid Trading Plan:
Prop trading requires discipline, so you need a solid trading plan. Set your entry and exit rules, risk parameters, and daily profit targets before the challenge begins. For example, you may choose to risk no more than 1% of your account per trade, take profits at 3:1, and aim for 1-2% daily account growth.
7. Fundamental Analysis:
Research the instruments you will trade to determine the optimal entry and exit points. Analyze financial statements, analyst reports, and news headlines. Look for instruments poised for price increases due to upcoming contracts or improved financials. Keep updated with major news events and economic releases that may impact the FX market. Use an economic calendar to keep track of such events.
8. Support and Resistance
Identify key support and resistance levels, especially on daily and hourly charts. These are price points where a stock is likely to stall or reverse. You should use trendlines, Fibonacci retracements, and pivot points to develop your analysis further. Place long trade entry orders just above resistance and short trade entry orders just below support.
9. Always Use Stop Losses and Profit Targets:
Limit your losses by placing a stop loss order with every trade you make to manage risk. It is also important to have a profit target to avoid being greedy and taking too much profit. Instead of overleveraging or overtrading, I set daily goals and exit the market. Maintain a balanced approach to avoid significant drawdowns. Avoid risking too much capital on a single trade. Also, I do not overtake by taking too many positions at once, because I know this will reduce my risk management ability. So, take high-probability combinations based on your plan. When you reach your daily profit target, you should exit the market.
10. Don’t Trade During the News:
Avoid trading during major news releases to succeed in a prop firm challenge. Uncertainty and inconsistency related to economic data and international affairs might negatively impact your trading strategy.
11. Monitor the Economic Calendar
These are a few of the most market-moving indicators:
- U.S. Non-Farm Payrolls (NFP)
- The Federal Reserve’s interest rate decisions and policy statements
- Quarterly GDP reports measuring economic growth
- Announcements regarding global trade deals or tariffs
It is best to avoid trading 30 minutes before and after these news events. Market reactions are often over the top and price action is unstable at this time. It would help if you waited some time to see how the updated information impacts your trading perspective once the dust has settled and the risk has decreased. With MyForexReport’s economic calendar, you can keep track of the market.
12. Have a Game Plan For Different Scenarios
For example, if the Fed signals stronger monetary policy by increasing interest rates, you may want to look for short-term positive setups in the US dollar or negative setups in gold and Treasuries. Alternatively, if a trade agreement is announced, sectors such as technology, industrials, and materials may benefit. Prepare for the worst-case scenario as well. Planning ahead of time will allow you to react fast while keeping emotions in check.
13. Focus on the Technicals
The market’s reaction often depends on how the news compares to expectations, so previous forecasts and economic surveys can provide context. Ultimately, the charts will tell you where the market is going. You will be able to make high-probability trading selections during your prop firm challenge if you don’t avoid important news events and prepare for alternatives. Stay alert and wait for volatility to calm before deciding how to capitalize on new knowledge.
Final Thoughts
To pass a Prop firm challenge you will need knowledge as well as strategic planning. By following my 13 master tips, you can increase your chances of passing. Don’t get disheartened if you don’t pass a few challenges. It’s bound to happen. The process is pretty intense.
So, always stay disciplined, maintain a positive mindset, and continuously improve your trading abilities. With perseverance and dedication, you can become a successful prop trader.
How to Pass a Prop Firm Challenge FAQs
These are the top queries that people are concerned about how to pass the prop firm challenge.
Passing a Prop Firm Challenge can be quite nerve-wracking. Through these trials, firms determine your skills, knowledge, and ability to perform under pressure. Some find it hard, some not so much. Ultimately, it comes down to your experience, preparation, and ability to adapt to different trading strategies and market conditions.
It varies from firm to firm. Each Prop firm has some specific requirements, trading days, and the individual’s skill level and dedication. I would advise you to contact the firm that you want to enroll in for more info.
From my experience, I can say that Educational materials on trading strategies are very important for any beginner. You can also seek the guidance or mentorship of an experienced trader. In addition, prop traders communities on Telegram, Facebook, and Discord publish daily tips. You can go through them as well.
Richard Gibson is a trade analyst and writer for MyForexReport. He has over 10 years of experience in investing and trading equities, options and bonds. He trades options, stocks, and ETFs regularly following a value-driven investment philosophy. He’s a graduate of the University of MacEwan University, and holds a graduate certificate in financial planning from the University of Calgary.
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