When Should You Buy a Prop Form Challenge?

  • February 27, 2023

Forex prop firms have taken the industry by storm over the last few months, and there has been a giant increase in the number of traders looking to obtain funded trading accounts. To trade on a large sum of capital, you must first prove your trading ability by way of a funded account challenge. For example, all of our Lux Elite Funded Traders have passed a trading challenge to prove their ability before being trusted with real funds. With that being said, it’s not always the right time to be purchasing a trading account challenge and there are various steps that you should be considering before pulling the trigger on the challenge. So, in this article, we are going to look at all the steps you should be taking to assess if you’re ready to become a funded trader! Let’s get into it…

Purchasing A Prop Firm Trading Challenge – The Checklist

 There’s no denying the appeal of purchasing a prop firm challenge, even before you’re ready to start trading on the account. By utilizing the funding available, traders can go from managing £200 to £100,000 overnight – something that wouldn’t be possible in any other industry! However, the appeal of funded accounts can cause traders to be slightly too hasty in their approach and miss the key foundation steps that are needed to be successful. You may be thinking that this sounds counterintuitive for a prop firm to be saying this… However, Lux Trading is the only prop firm offering real trading capital. We only make profits if you do – so we want our traders to sign up when they’re ready and be successful! So, let’s take a look at the precursors you should be considering prior to adding that trading challenge to your cart…

  1. Having A Trading Plan

 If you are considering becoming a funded trader, you must have a trading plan in place. This has to be a rigid, rule-based trading plan. If you’re yet to create a trading plan, that’s fine! You should be thinking about studying the markets and looking at various free materials online to create a base for you to work from and build upon. We discussed a potential trading strategy to build from in this article. Once you’ve then developed your strategy, you should be thinking about obtaining funding – not before. We’ve covered how to build a trading plan for prop firms in this article, but in essence, you need to make your trading plan as rule based as possible. With no trading plan in the markets, you turn the markets into a casino. You have no real edge in the markets and eventually, the house will win. Whereas with a tried and tested trading plan, you’re essentially just filling the orders and executing within the market – with very little input from yourself. This makes a huge difference to win rates, profitability, and trading psychology as you’re just following orders – there’s no weight on your shoulders!

  1. Back testing Your Trading Plan

 Creating a trading plan is great, but it’s entirely pointless if you don’t know whether the trading plan will lead to profits or not. Not all trading strategies or trading plans are created equal and many will not have an edge within the markets, meaning after hundreds of trades, you’ll be breakeven. There’s no getting around the fact that back testing a system is time-consuming. To back test successfully, you need to simulate hundreds of ‘valid’ trades using your trading plan to assess profitability. Back testing will also allow you to introduce changes to your trading system that will increase profitability and hopefully reduce your risk within the markets. There are various tools that can be used to back test, such as TradingView. If you haven’t yet back tested a trading strategy, I’d highly advise doing so before looking at pulling the trigger on your funded account. The reason for this is back testing can save you a huge amount of wasted time. 

If you’re trading a plan that genuinely is not profitable, you could still have winning streaks. These winning streaks will naturally increase your confidence, and you’ll most likely try to increase your risk per trade. When this ultimately stops winning, which it will, you’ll be in trouble. I’ve had many trading strategies previously that, I thought, were profitable, until I went onto back test them and realized that they didn’t even break even over the long term!

If you’re looking to do this step as quickly as possible, you could potentially get away with just 100 trades as a sample size. I would still recommend doing more, but with a sample size of 100 trades you should still have a good flavor for whether a system has a huge amount of drawdown or large losing streaks etc. It’s crucial to bear in mind that if you have any bias whilst back testing, the results will be invalid. You need to be as cautious as possible and do not count a trade in the dataset if it doesn’t meet 100% of the criteria set out in your trading plan.

Once you have a back tested trading strategy, I’d recommend starting to consider becoming a funded trader. 

  1. Having Your Trading Psychology In A Good Spot

Psychology plays a gigantic part in trading and is arguably one of the biggest parts of the puzzle. You will be able to find many profitable trading strategies online that have been made into EA’s or algorithmic trading systems. These trading strategies are all very simple, usually only combining one or two indicators and simple price rules to fulfill orders. Humans could, in theory, easily trade a system like this and be profitable. However, the robot is typically much more profitable, in this case, than the human. This comes down to a combination of human error and, more importantly, the psychological toll of trading. As a trader, you need to be constantly able to monitor your fear and greed and make important decisions with very little time to decide. Decisions that will have consequences on your trading results. With that being said, once you can master your trading psychology, you will be able to just execute positions in the markets and feel nothing. At the point where you can face drawdown without being concerned and looking for a new trading system, you should be starting to look at prop firm funding.

It’s worth noting that this level of confidence also comes from time within the markets. Back testing your trading strategy hundreds of times will give you that confidence in your ability as a trader and your strategies’ ability within the markets. Once you’re at that point, funding should be something you consider.

In Summary – When Should You Be Purchasing A Prop Firm Challenge?

In conclusion, being a funded trader has a huge number of perks, but you don’t need to jump into it without being ready!

Before purchasing a prop firm challenge, make sure:

You have a trading plan

  • You’ve back tested the trading plan over 100 times
  • You have bulletproof trading psychology

If you have these 3 things in check, you’re likely to walk through your funding account challenge and be funded in no time at all!

If you are looking to become funded, work with Lux Trading Firm now!