How to Control Emotions During a Prop Firm Challenge

  • July 5, 2023
How To Control Emotions During Prop Firm Forex Trading

Trading any market has never been an easy feat. If finding a profitable trading strategy wasn’t hard enough, actually managing to execute that strategy and ignore natural human emotion can be incredibly hard for traders to do. In prop firm trading, when there are large sums of capital on the line, traders can often let fear and greed get to their heads and make the wrong decisions, leading to subpar trading results.

In this article, we are going to look at exactly how you can control your emotions and remain level-headed whilst trading forex! So, let’s get into it…

 Controlling Your Emotions During A Prop Firm Trading Challenge

Prop firm trading challenges, or trading in general, can be extremely stressful for traders. Many traders get plagued with emotion when they see profits and losses floating in their account, which frequently leads to traders making the wrong decisions. Every so often, these decisions can lead to more profits in the short term, but over the long term, consistently making the wrong decision whilst under pressure will lead to negative impacts on your trading performance.  

The two emotions that plague traders are fear and greed. The fear of losing further capital or losing trades is something many traders battle in their heads every day. The greed of wanting to make more profit, hold a trade for longer or take invalid trading setups just in case they work is something traders frequently do. So, let’s look at how our Elite Funded Traders manage to combat their emotions and remain consistent in the markets.

Having An Objective Trading Strategy

The reason most traders struggle to keep emotionless in the markets is because they have a subjective trading strategy. This means that the strategy does not have a strict ruleset to follow. This puts a huge amount of pressure on the trader to make the right decision every time, which isn’t possible! Often in the markets, there will be both an opportunity to buy and sell at the same time. For example, a trader focusing on buying a support level will see a valid long opportunity, whilst a trader focused on momentum trading will see a sell trade present itself. For this reason, you can easily second guess yourself and end up not pulling the trigger on a trade, or going against your initial analysis of the markets. When you are creating your trading strategy to get prop firm funded, you need to seek to make it as rule based and objective as possible.

This will then give you a set of steps to follow, meaning none of the pressure is on your shoulders. You’re simply executing a set of rules – the decision is already made for you! This will lead to you as a trader having much less emotional attachment to the outcome of a trade, as it isn’t your decision! 

Undertaking A Large Back Test

Before hitting the ground running with a trading strategy, you should complete a large back test of your strategy.

The main reason many traders chop and change their trading strategy constantly and end up not getting anywhere is due to the fact they don’t actually know if their strategy is profitable. There are some elementary and objective trading strategies that would bank a consistent 1% gain per month. We know traders that execute strategies like this on prop firm funded accounts and still net better returns than traders with more complex strategies and more knowledge of the markets. Following a back test of 100+ trades, you’ll have a good idea of whether your strategy works, and the drawdown levels you’re likely to see. This will give you confidence to blindly execute your trading plan without letting emotions creep in.

If you don’t know whether your strategy is even profitable, and you’ve just taken 5 losses in a row, of course you’ll start getting fearful and making the wrong calls within the markets! However, if you know the strategy is profitable over the long term, 5 losses will mean nothing to you, and you’ll continue chipping away with no emotion!  

This is what sets profitable traders apart from amateur traders.

Using Consistent Risk Per Trade

We’ve seen it time and time again… Traders pick random percentages of risk per trade depending on how much they like the setup or how much they’re up/down for the month or quarter. This approach does not work.

It’s actually possible to be a ‘profitable trader’ on paper, from a strategy perspective, whilst losing money in the markets if you’re constantly changing your levels of risk. It’s crucial to pick an amount of risk per trade and actually stick with this, regardless of the outcome of previous trades. Don’t increase your risk per trade off the back of a large winning streak or a large profit trade. Conversely, don’t decrease your risk per trade off the back of a losing streak, as it’ll take you much longer to get back to a breakeven point.

Using A Suitable Risk Level

Using a prop firm like Lux Trading Firm makes this simple. When you’re out in the markets trading your own capital, no one is looking at what you do, so you can easily over leverage or use a large risk per trade with no immediate consequence. Of course, over the long term, this will lead to traders destroying their accounts. Lux Trading Firm gives our traders a maximum drawdown limit. For example, your maximum loss would be 5% on your $200,000 funded trading account.

Knowing that, you need to look at your back test results. Let’s assume your maximum losses in a row over the last 3 years was 10 trades. You’d then know that to maintain a safe approach in the markets, you’d want to be using less than 0.5% risk per trade. Ideally, somewhere around the 0.25% risk per trade mark will keep you as safe as possible, as you’d need to lose around 20 trades in a row before violating your maximum loss rules. Of course, it’s still possible to lose more trades and violate the rules, but using the correct level of risk will remove a lot of the emotional burden you’ll feel whilst trading.

In Summary – How Can You Control Emotions During A Prop Firm Challenge?

In conclusion, there are a few simple steps you can take as a trader to control your emotions whilst trading with a forex prop firm.

It’s worth noting that you will still feel emotion, of course, and occasionally this will still cause you to make the wrong call within the markets. However, if you can remove and control as much of the fear and greed you feel as possible, you’ll be in a much better spot!

Are you looking to become a funded trader? Work with Lux Trading Firm now!