6 Common Mistakes to Avoid When Trading with a Prop Firm

Indian traders want to start Global Prop trading. Prop firm trading has lately become the fastest-growing sector. In prop trading, traders don't have to risk personal capital. They can trade with a firm’s capital, such as Funded Nation Prop, a recent entrant in the prop trading space. Prop traders can access large capital-infused accounts. They need to trade and make profits within the firm’s risk management rules. They can keep a maximum share of the profits. But here’s the truth: Most traders fail prop firm challenges because they don't read the rules properly. They have the skill but cannot avoid mistakes. 

In this blog, we cover the most common mistakes, examples and solutions related to prop rules, prop trading strategies and important trading concepts, including copy trading, news trading, overnight holding, weekend holding, drawdown, maximum drawdown and daily drawdown. 

Let’s begin.

Skipping the Prop Firm Rules

Do not make the mistake of skipping prop firm rules at all. This is the number one point you must follow. By not following this point, you increase the chance of failing a challenge.

What a trader needs first is to read after landing on the prop firm website. Most prop firms clearly and transparently mention their rules. If you cannot find, check with their support team. If you cannot find it at all, there must be something seriously wrong with the prop firm.

• Maximum daily drawdown - It is the first step to risk management. Exceeding the max daily drawdown can wipe out your trading account with the prop firm. Learn how to calculate maximum daily loss on Funded Nation.
• Maximum overall drawdown is the most critical and most traders fail here. You need to maintain this during your entire journey with the prop firm. Exceeding this limit will result in the closure of your prop account.  Learn how to calculate maximum daily loss on Funded Nation.
• Lot size & leverage limits - It determines the size of your trade. Leverage is the capital the firm will invest based on your capital. Learn them because both can affect your profitability and risk management.
• Weekend/overnight holdings are the most loved strategy among traders. It is useful for swing traders who prefer holding trade positions and waiting for price differences. They want to benefit from the price difference overnight or over 2 to 5 days (weekend holding).
• Copy trading & EAs - most prop firms do not allow copy trading and EAs. Funded Nation may permit it. It depends on your account type. Traders copy successful trading strategies on other accounts. EAs or bots sense opportunities to profit without manual intervention.
• News trading limitations - Another favorite prop strategy that helps traders benefit from high-impact news within 2 minutes before or after the news break. Funded Nation may allow it with approval.
• Time limits & payout conditions - it is critical to create trust in the prop firm. Not getting timely payouts is the pain point. Look for on-demand payouts. Funded Nation offered on-demand payouts on an Instant Pro-funded account. Check with the other traders. If they have received payouts and how much time taken. Read the payout promise of the prop firm.

Steps to solve this problem

• Always enable alerts if you are close to drawdowns and set alerts or automatic notifications for economic news breaks.
• Read the rules page and the FAQs thoroughly. Prop firms change or update the rules after every internal policy change.

2. Limit Your Per Trade Risk

Every prop firm has maximum daily and overall drawdown (loss) limits. They do not want traders to violate this limit. If they do, it will result in capital loss for the firm. That is why they keep strict limits on loss-making from a trade. Prop firms do not want traders to take too much risk on a specific trade.

When do Traders exceed risk per trade:

If they risk 5 to10% per trade. Most firms recommend 0.55 to 1% risk per trade. Traders want to make quick profits. They rush to meet the profit target quickly. Some traders want to make huge profits. All these can breach the consistency rule.

What traders need is disciplined trading. 
Risk up to 0.5%–1% per trade. Prop firms want traders to focus on consistency and move slowly to achieve profits.

Benefits of risking low

• Your account will continue long-term
• You will enjoy more emotional and psychological stability and avoid stress
• The probability of clearing the challenge or managing risk parameters will increase.
• You will enjoy a relaxed, smooth, consistent equity growth.

3. Avoid Revenge Trading & Overtrading

It is a common tendency in traders when they encounter a series of losses, no matter how small in magnitude they are. Prop traders give up mentally and surrender to the situation. It disturbs their emotional balance after a losing episode. They try to recover all the losses from one trade. It is a colossal mistake of prop traders. Your emotional state can affect your decision-making ability and can wipe off accounts faster if wrong decisions are taken. As they say, Prop trading is more inspiration than perspiration; it is 80% psychology and 20% strategy and knowledge about the rules.

How do you know you are in a revenge trading mode:

• You are opting for bigger lot sizes after encountering losses
• Going out of the plan and strategy and trying to fire all guns together
• Acting impulsively, emotionally, driven by psychic trade decisions not backed by data or trend
• You are picking random times and markets to trade, even though you have no specialization or knowledge about them.

How Traders Can Fix Revenge Trading:

• Step back: Analyse, resort to journalling. Refrain from trading if you have encountered 1 or 2 consecutive losses.
• Take a time-out and divert your attention from trading to creative activities, or simply take a walk or eat your favorite food. You deserve a break. Think not about trade or losses, at least for 15-30 minutes. Start trading with a fresh mind.
• Back test strategies, review them and take help from the Funded Nation community on social media or Discord. Talk, discuss, analyse and prepare; you have the time now as you are actively trading.
• After you feel confident and have organised everything you missed, get back only when calm and composed about your capability as a skilled trader.

4. Random Trading Strategies Not Back-tested

Prop firms require consistency in traders and traders need strategies backed by “proof of concept” that they will work. Many traders resort to copying strategies from other traders. They gather it from unscrupulous sources or social media, such as YouTube or Reddit. At least test in a simulated environment before you try them in an actual challenge.  A non-tested, unconfirmed strategy cannot withstand drawdowns. If you have proven strategies, you can trade profitably.

Why Copying Trading strategy Approach Fails

• No sample test or backtesting, no proof of concept
• No forward-testing to check if the strategy is foolproof
• Lack of knowledge, making quick losses, not reading of rules and not understanding drawdowns
• Traders lack clear entry and exit rules or strategies. It is critical to know when to start, but also important to know when and where to stop.

How do Traders solve the problem?

Test strategy - a detailed plan for traders

• At least 100 backtested trades and register the proof of concept in order of merit.
• Test your skills, do not jump the gun; an advisable 30-day period for trading a simulated account.
• Follow the written rules, write the rules yourself and internalize them.

If your strategy is proven, passing becomes easier.

5. Multiple Trades

Stop trading on every instrument. Beginners make this common mistake. Trading forex, indices and crypto all together shows a lack of specialisation and focus. Do not unnecessarily handle many things at a time. It creates confusion. It produces inconsistent results. Being consistent is the key to success. Many firms have a consistency rule. It restricts traders from taking larger risks per trade. How much you can risk also depends on the account type and the prop firm.

6. Journaling & Tracking

Journaling is one of the best practices in prop trading. Traders often ignore this step. Journaling must be done daily. Successful prop traders do it without fail. It is the secret weapon for successful traders. Let us understand what Trade Journalling is. It is a data-backed move. It confirms strategies that can drive profits. It eliminates the luck factor. It helps traders be consistent. It helps traders identify strategies that worked. 

Final Thoughts

Indian traders are skilled and experienced. They have a bright future in prop trading. But, they must stick to the risk management rules, manage emotions, manage risk, never overtrade, understand their limits and stay emotionally disciplined. Increase your skill to pass one-step challenges and earn long-term payouts. Start your trading journey today with the fastest-growing, most transparent prop firm, The Funded Nation and sign up to jumpstart your profitable journey from day 1.