Indeed, engaging in proprietary trading firm competitions allows winning traders to access considerable capital for trading. These challenges are not easy, and many traders fail them due to avoidable reasons. Knowing such blunders can enable a trader’s success rate in a One Step Challenge prop firm or in a 2 Step Evaluation hurdle to be much higher.
Ambiguous Trading Strategy
A broad-level blunder that one can unearth in prop firm challenges is the absence of a clearly formulated trading plan associated with proper entry and exits. Instead of following a systematic methodology, traders tend to act on whims, causing an erratic level of results. A sound trading plan must have the following items:
- Set entry and exit for each trade
- Risk exposure for every single position
- Set limits on the amount of capital allocated per trade
- Outlining a daily trading plan
The absence of an effective trading activity plan may tempt a trader to make more emotional and knee-jerk decisions, which inevitably brings along losses and failure in meeting challenges.
Overleveraging and Ignoring Risk Management
In anything that involves trading, risk management is crucial within a prop firm One Step Challenge or 2 Step Evaluation context. Many traders will go into too much risk by leveraging too much, hoping for easy profits. Unfortunately, this will often result in:
- Daily or total drawdown limits being blown out
- Losing account balances that need not have been lost
- Trading emotionally because of excessive risk
In order to avoid overleveraging, traders need to adhere to risk management measures such as limiting risk to a small fraction of the account size per trade and utilizing stop-loss orders properly.
Ignoring Drawdown Limits
The same applies to prop traders. There are drawdown rules as a safeguard against capital erosion. As such, any trader who contravenes such rules will most likely fail the evaluation. Problems associated with drawdown include:
- Sustaining a losing trade position for too long in bearish environments and praying for a bullish market reversal
- Aggressive trading after losses to compensate for the lost amount
- Failing to scale down the positions due to declined accounts with balance
In a drawdown, traders need to know that they have to think about their risk exposure on every single trade and adjust accordingly.
Exceeding Target Profits
In an attempt to quickly capitalize on profit targets, traders tend to overtrade. Overtrading can lead to:
- Gaps in decisions due to a certain fatigue set in by underlying market changes
- Negligence to abide by set trading protocols
- Fatigue Punching and Stress Overbought
As opposed to overtrading, traders should instead fixate on disciplined trading approaches and high-quality setups. In prop firm challenges, long-term target results can be achieved if focus is emphasized on quality over quantity.
Inconsistency in Set Trading Approaches
Requires traders to demonstrate consistency for 2 Step Evaluations and One Step Challenge prop firms. Some traders will try to find their “ultimate system,” resulting in lost performance. This unsteady trading leads to:
- Deficient risk-reward ratios
- Erratic Profit and Loss behaviors
- Emotional impulse trading
Traders can look to focus on one tested approach instead of switching and overcomplicating methods to achieve higher focused consistency.
Which Traders Get Affected the Most By High Volatility Events
Many prop trading firms do not allow trading during important news events because it brings high volatility and uncertainty. Some of the traders lose their challenges because they break this rule by making aggressive trades during significant news events. These events can cause:
- Drastic shifts in market direction
- Increased loss levels and spreads
- Losing money without control
In order to not make this mistake, traders should remember to check the economic calendar and ideally not open trades around the major news events unless they have a strategy geared towards trading during the major releases.
Lack of Planning and Time Overestimation
A number of traders try to clear their challenges with the prop trading firms far too quickly which ends up getting the trader in trouble as they try to overtrade. Sometimes, this can lead traders to:
- Overtrade without the proper strategies
- Increase their risk appetite
- Occupy themselves with less productive issues
Prop firms are more concerned with observing consistent returns rather than boom profits. Instead of trying to chase targets, traders need to demonstrate that they are capable of effective risk management by developing plans to gradually build up to high targets systematically.
Inability to Advance on Market Opportunities
The dynamic nature of markets makes life difficult for traders who cannot adapt, which, in turn, affects their performance in prop firm competitions. Furthermore, some factors contributing to mistakes made during adaptation include:
- Employing uniform strategies across various markets
- Noticing market reversal indicators but ignoring them
- Refusing to change risk factors given changes in volatility
Professional traders track the performance of the market to enhance or revise their plan of action. Whether working with a One Step Challenge prop firm or 2 Step Evaluation prop firm, being flexible and open-minded is very important and crucial for any firm to experience growth and development in the future.
Disregarding Mental Discipline
Despite being an integral part of the trading world, trading psychology is highly underrated. Psychological errors that fail traders are:
- Using emotions to make trading decisions
- Fear of being left out (FOMO) and resulting in making snap trades
- Engaging in revenge trading after a negative hit
To ensure self-discipline, a trader must be calm, patient, and determined to follow his plan instead of trying to outbid the market.
Overlooking Company-Specific Policies
Every proprietary trading company will have set rules governing trading; default on compliance, and you will be disqualified from the funded accounts challenge. These violations can be ranged as follows:
- Trading inappropriate assets
- Overnights trade when not allowed
- Not keeping within maximum lot sizes
Traders should ensure all the firm’s policies are read and understood to limit any unintended breaches of rules before stepping into the challenge.
Final Thoughts
Grasping the issues and understanding how to solve them on prop firm challenges will significantly boost the chances of success for a trader participating in a One Step Challenge prop firm and in a 2 Step Evaluation. It is essential for traders to manage risks and remain consistent, disciplined, as well as flexible to market conditions. Being able to identify these stumbling blocks together with the necessary corrective action will allow traders to perform better and have greater pathways to obtaining funded accounts.
As the editor of the blog, She curate insightful content that sparks curiosity and fosters learning. With a passion for storytelling and a keen eye for detail, she strive to bring diverse perspectives and engaging narratives to readers, ensuring every piece informs, inspires, and enriches.
