Prop Firm Trading Strategy: Easy Prop Firm Trading Challenge (2024)

by Casey Stubbs Follow Me on Twitter for Trade ideas Live

Since we recently started our own proprietary trading firm, we have since developed a highly accurate prop firm trading strategy. By carefully executing our prop firm trading strategy, trader’s should know how to pass a prop firm challenge with ease by the end of this article.

Before we begin, if you’re completely new to trading, check out our best beginner’s guide to understanding financial markets.

Also, if you haven’t already, you really should read our ultimate prop trading guide. It will fill in some of the gaps of your understanding on everything you need to know about prop trading.

Intro — How To Pass a Prop Test

You are currently reading the fourth article in our prop trading series, How To Pass a Prop Firm Trading Test.

In the first prop trading article, we taught you the necessary steps required to become a prop trader. The comprehensive guide broke everything down in simple bite-sized pieces to teach would be beginner prop traders everything we could think of on their journey to become a prop trader.

In the second article, we taught you the essential first steps of how to become a prop trader. It’s another comprehensive guide teaching the basics, discipline, and research required to launch your prop trading career.

The third article in the series, answers the question, “Is prop trading legal?” This article focus primarily on US citizens because financial regulations in the USA can be daunting.

Now you are here at article number four, how to easily pass a prop firm trading test. We are going to give you the tools you need to pass the test. This includes, strategy, discipline, and risk management techniques that you’ll need while taking the prop firm trading test.

Our next article, will give you a list of the best prop firms to join in 2023, so that you can sign up to pass your prop firm challenge.

Please leave a comment after reading this article if you feel there are any additional topics you want us to cover.

Now let’s begin learning The Best Prop Firm Trading Strategy!

Prop Firm Trading Strategy — How To Pass A Prop Test

This article is going to show you step-by-step how to pass a prop firm trading challenge, which is important because it gives the average trader access to massive funding that would not be available to them otherwise. Prop firm trading opens up a huge opportunity for retail traders who want to go into full time trading.

I have extensive experience trading in the Forex Market, as well as, trading with prop firm accounts. Trading with a prop account is a huge opportunity for the average trader if they get connected with a good prop company.

Check out our Forex day trading strategy as well!

This is going to be a complete guide for teaching you a prop firm trading strategy, this is a list of everything you need to know to successfully pass a prop firm test.

What is a prop firm?

A prop firm is short for Proprietary Firm and the definition of a prop firm, according to Wikipedia, is:“A financial firm or bank that invests for direct market gain rather than earning commissions and fees by trading on other’s behalf” [1]

A prop firm is a company that has access to large funds and hires proprietary traders to trade those funds for them, so they can earn a profit. This became popular in the 1980s because banks had an opportunity to earn additional profits from their massive customer funds.[2]

Another reason that companies would start a prop firm was because a financial company’s profits can be small because they only get a percentage from customers’ financial transactions. By starting a prop firm, the company has an opportunity to earn a much higher profit percentage than just doing financial transactions alone.

These prop firms became popular in banks,

Later on, that changed because of a law called the Volker rule and it was passed during the 2008 financial recession. The reason this law was enacted was to stop banks from conducting risky trading behavior with customer funds along with many other terrible business decisions many large banks needed to get bailed out to avoid a massive depression.[3]

Some of the most notable banks bailed out during the financial bailout of 2008 were Wells Fargo, Bank of America, JPMorgan Chase, Morgan Stanley, Goldman Sachs, and Citigroup.[4]

For more information, check out our Prop Trading Beginner’s Guide.

Changes in Prop Firm Trading

As a result of this law, prop firms have changed from being run by banks and brokers to being run by private businesses. The prop firms now invest capital and hire traders or they charge them to trade with their funds.

Prop firms have recently opened up to retail traders and are changing the retail trading industry because, larger accounts are now available to the average trader and not just banks and hedge funds.

The opportunity of proprietary trading means that someone who is undercapitalized just needs to learn the skill of trading rather than growing their capital. For example, if you can learn to consistently make as little as 1% per month trading, with very small drawdowns, you can then scale up with a prop firm.

You could learn to trade successfully on a demo account with no money down. When you learn successful trading on a demo account you can then pass an evaluation test for a prop firm and when you pass the prop firm test you then get access to the prop firm’s trading funds.

This is a game changer because now we have prop trading firms no capital contributionrequired.

Make sure to also check out our article on Forex trading for beginners.

This puts the ability of people with little or no money to become extremely successful in the trading industry which is not ever happened before. For those that see the opportunity and want to go after it, this could be a financial game changer.

How does a Prop Firm Work?

Prop Trading is relatively simple and straightforward. It works like this: If you can earn a 10 % gain before losing 5% then you can pass the test and qualify for trading funds for the prop firm. When you pass the evaluation test you then get access to trade a live account. There are prop firm accounts with values of 10,000 up to over 1 million dollars.

The Prop Firm High-Water Mark

There is something known as a high-water mark, which many prop firms use to stop draw-downs and protect the capital of the prop firm. A high watermark is simply the all-time account balance of the trading account. The drawdown of a trading account is calculated from the high-water mark.

Here is an example: If you have a $25,000 prop account, and you win one trade and earn $1,000 your account balance then becomes $26,000. The new high-water mark for the account is $26,000

When a trader passes the prop firm challenge, they will then split the trading profits with the prop firm company. The amount of revenue sharing changes depending on each prop firm. With the Trading Strategy Guides Prop firm, there is a 75/25 split, with 75% going to the trader.

There are different rules on how to pass a trading prop firm test for different prop firm companies. Some prop firms have a 30-day time limit in which you have to pass your test. Other prop firms make you pass phase one and phase two. You will have to do research on each prop firm to determine which one is right for you.

There have also been reports that there are some prop firms that do not pay out and scam people out of their hard-earned money. Make sure you do your due diligence and find a legitimate prop firm.

Benefits of the Trading Strategy Guides Prop Firm — Global Prop Trader

Trading Strategy Guides has a prop firm, called Global Prop Trader, that has many advantages over some of the other prop companies out there. Here are three advantages of using Trading Strategy Guides prop firm.

1. Global Prop Trader only has one phase that needs to be completed to qualify for the live prop account, whereas most have multiple phases. Trading Strategy Guides is an instant funding prop firm once you pass phase one of the evaluation.
2. Global Prop Trader does not have a time limit for you to pass the test, you can take as long as you need to pass the trading evaluation test.
3. Global Prop Trader has large accounts of up to a million dollars other prop firms have a limit to the amount you can trade with.

Which is the best prop trading firm?

We recommend that you do your research, but we like spot Forex prop firms the best because of the availability to trade multiple instruments (including CFD’s, commodities and cryptocurrencies) and 24-hour-a-day trading access.

Is proprietary trading a Legit way To make Money?

It’s not a simple yes or no it depends on several factors to determine if prop trading is a great way to make money for you.

Factors you must consider and answer for yourself.

1. Are you trading with a reputable firm?
2. Do you have the skills needed to be a successful trader?

If the answer to the above questions is yes then yes you will do well as a prop firm trader and it will be a great way for you to make money trading.

What is a Prop Firm Trading Test?

When a trader believes that they are ready to take a prop firm test, they will pay a small fee to take the trading evaluation. This evaluation is designed to filter out the successful traders from the poor traders.

There is about a 99% failure rate for traders who attempt to take the prop firm test. It is not as easy as you think it will be.

Our recommendation is that you practice it several (or many!) times on a demo account before taking the real prop firm evaluation test. Many prop firms have proprietary trading software dashboards where you can see how your performance on the test is going.

Here is the dashboard with the trading strategy guides prop firm.

If the trader passes the test they get immediate access to the live funds.

How to Pass a prop Firm Trading Test

If you want to know how to trade for a prop firm, you must first understand how to pass the prop firm trading test. We have developed a proprietary trading strategies pdf for you to download if you need a strategy. You can also use your own strategy if you prefer.

The first thing you need to know is that you must be a master of your risk at all times. As soon as you have a 5% drawdown from your high water market you will immediately fail the test.

Here are a few key methods to assist you in becoming a master of risk. With Our Prop Firm here at Trading Strategy Guides you do not have a time limit so there is no reason to take excessive risk as there might be at other prop firms.

1. Always keep your Trade Risk Small 1% or less is even better.
2. If you experience a small drawdown immediately decrease trade size until you achieve a new high water mark.
3. Small and consistent gains are better than larger fast gains because it is extremely easy to drop below that 5% drawdown level.

Benefits of Trading with Prop Firms

Is it good to trade with prop firms?

Yes, prop firms are great for traders because you do not have to contribute any of your own capital this is one of the biggest benefits of trading with a prop firm.

Another benefit to trading is that you can practice on a demo as long as you want without any risk to your capital and then when you are ready you can take a paid evaluation to begin trading with real funds.

The last and probably biggest prop firm benefit is that you can get access to large amounts of capital. The saying it takes money to make money plays a huge role with proprietary trading firms and fortunately for the prop trader they get to use “OPM” Other People’s Money to make a living. It is relatively easy for prop firm traders to get access to amounts of one million dollars or greater.

How much do prop firm traders make?

This depends on the balance of the prop firm trading account you are trading.

If a prop trader makes 1% a month while trading a $25,000 account that would be $250 per month, that’s a nice chunk of change but hardly enough to make a living off of. If you make 1% per month on a 1 million dollar account, that is $10,000 per month, which would be $120,000 per year trading using a prop firm.

Prop Firm Trading Strategy

What strategies do proprietary trading firms use?

There are many different strategies and you should find one that fits your personality and the time that you have available for dedicating to trading. If you have to work you will need to use daily charts which is a longer time horizon and you can do that by looking at your charts for a few minutes each day before and after work.

The best prop firm trading strategy is a simple strategy that only has two indicators.

We have provided step-by-step instructions for the best prop firm trading strategy.

Step 1: Identify Trend using Trend Structure on 4 Hr time Frame

Step 2: Apply the 20 Period Simple Moving Average and the 14 RSI Indicator.

Step 3: Drop to 1 Hr time frame to analyze the chart

Step 4: Wait for RSI to get to overbought 70 or oversold 30 on the 1 Hr time frame and for Price to hit a support or resistance level.

Step 5: Wait for the price to hit a support or resistance Level.

Step 6: When you get candlestick pattern or breakout in the direction of the trend and a Cross over 20 period moving average then take the trade.

Note: Place stop loss below support or resistance level and make sure you have at least twice the reward verses your risk.

If you stick with this strategy you can earn consistent revenue from trading. The biggest challenges to becoming successful are learning to trade and having the proper trading mindset by following the rules and managing risk. Study up on your chart patterns one important one that we recommend is the bearish flag pattern.

Forex Prop Firm Strategy for Success

It is important to remember a few key things to become successful in trading with proprietary firms.

1. Always focus on risk first, if you can learn to control risk well you are 65% of the way to becoming a successful trader. If you learn to manage risk you can become a funded trader.
2. Don’t get greedy it is better to be consistent than to make a lot of money. If you can learn to consistently make money trading you can always increase the size later but focus on consistency first then focus on increasing the size of the trade.
3. Stick one with one strategy you don’t have to do many things at once. Learn one thing and do it well and you can become a master.
4. Remember this is no such thing as the perfect trading strategy there are many that you can use, we have compiled a list of some of our all time favorite trading strategies.

The following video can assist you in understanding how to trade with the best candlestick patterns.

How to Pass a Prop Firm test with one trade.

Passing a Prop Firm test in one trade is not an easy task but it can be done if you are patient and wait for the right trade. The first thing we need to do is identify our risk-to-reward ratio.

To pass a prop firm evaluations test it takes a 10% gain which means that you need to make a 10% profit in one trade. To do this we must determine what the correct risk-to-reward ratio needs to be.

Here are some examples of trades that can make 10% on a single trade.

1. Risk 1% and make a 10 to 1 Reward to Risk on a trade.
2. Risk 2% and make a 5 to 1 Reward to Risk on the trade.
3. Risk 3% and make a 3.4to 1 Reward to Risk on the trade.

In order to accomplish a task, we must have our sights on the objective and in this case, we want to make sure we know where the price will go so that we can pass the prop firm test in one trade.

If you remember earlier in this article where I discuss the best prop firm trading strategy we are looking for reversals on a lower time frame, this is also a great way to win a prop firm test in one trade.

See this example of a prop firm trade winning trade.

Summary of Prop Firm Trading Strategy

Prop firm trading is a great way to earn a significant amount of money if you put your mind to it. However, be warned this is not a get-rich-quick strategy nor will it be easy. It is important to note that it has been estimated that 99% of prop firm traders fail the trading evaluation.

When you begin trading, you will be competing against the world’s best traders, and you must focus on high performance and constant improvement if you wish to make consistent revenue from prop firm trading.

The prop firm trading strategy we have explained in this article will get you started on your journey to becoming a successful prop firm trader. This training will give you a solid understanding of a great prop firm trading strategy.

Up Next

Do you feel like you’re ready to take a prop firm trading test? Then you might be ready to join Global Prop Trader, or check out the best prop firms in 2023.

Additional Reading:

Are you obsessed with Trading Strategy Guides now? Great! We have tons of amazing content for traders of all levels. If you want to just browse around, feel free to head to the TSG Blog Page to get your fill of timeless trading content. If you need something specific, check out the following:

• What is Trading – This is probably the most in-depth, all-encompassing guide to understanding the basics of trading, and provides you with the necessary tools to understand financial markets more thoroughly.
• Prop Trading – The prerequisite to the guide you just read (at least, I hope you read it), if you skipped ahead, then you might want to go back and read the ultimate beginner’s guide to prop trading.
• Forex Beginner’s Guide – A must-read for all Forex Enthusiasts, even if you think you already know everything, I’ll bet you find something you don’t.
• Day Trading for Beginners – Looking to become a world-class day trader? Then head on over and check out the best day trading guide.
• Risk Management – Don’t gloss over this topic, PLEASE! Even the best and most intuitive traders insist you need a good risk management plan in place. This one is also good, about Sharpe Ratios.

How To Trade It Podcast

Are you interested in podcast episodes related to the content you just read? You might enjoy some of the episodes below:

The Benefits of Prop Trading

https://tradingstrategyguides.com/jessica-inskip-options/

Sources cited for this Article:

[1] Proprietary Trading Definition – Investopedia

[2] What is ‘proprietary trading’? The Guardian

[3] Big Bank Bailout Forbes

[4] Bailed Out Banks – CNN Money