“Knowledge is power: You hear it all the time but knowledge is not power. It’s only potential power. It only becomes power when we apply and use it” a quote by Jim Kwik, who is an American entrepreneur and a brain coach. This quote applies perfectly to trading in forex markets. Although statistics show that around 90% of traders lose money, a big part of profitable traders still struggle to earn what is enough to pay for their bills, and this is due to undercapitalization.
If you’re an aspired forex trader who has been consistently profiting on demo, or $500 accounts, and you feel like what you’re earning is still not worth the effort, time, control and risk management required to successfully tackle your career as a full-time trader, then trading with a forex prop firm is your next step.
Trading with forex proprietary firms gives you the chance to apply your trading knowledge, and turn it into power. By trading the firm’s capital, and getting a huge split of the profits you make, you can quickly leverage your trading income. However, that’s only one side of the coin. The other side is if you want to start trading with forex prop firms, there are some practices that you need to follow to make sure you’re not only profitable, but also consistent, and a risk management professional.
How to start trading with forex prop firms?
Prop firms will usually ask you to go through a process of evaluation and assessment to make sure they could trust you with their money. Making profits is not their only goal, however, making sure that you know how to control your risk and portfolio drawdown is as equally as important. The following points are things that you need to follow while trading on a demo, or your undercapitalized account before applying to join a prop firm:
1) Know the rules
Whether you’re willing to trade in stock markets, Forex, derivatives or whatever the market is. You should know the rules and guidelines set by the prop firm you’re aspiring to join. Those rules should define the maximum position size, daily loss limit, maximum drawdown,
risk tolerance, etc. Knowing the rules is the first step in the process of trading for a prop firm.
2) Write down your trading strategy
You won’t earn anybody’s trust with their money if you don’t really know what you’re doing. If you’re not someone who relies on algorithmic trading, writing down your trading strategy increases your discipline, and improves consistency. Your trading strategy should answer questions such as what to trade, when, why, and how much? By doing this, you minimize the number of pure discretionary or gut-feeling trades. Which timeframes do you use? Do you use technical indicators to filter your watchlist, or do you get confirmation from them? Do you trade naked price action? Those are questions you should have a clear answer to. 3) Start a trading journal
Although all trading platforms provide you with your trading history, they won’t help you remember why exactly you entered this position, and why you exited. Writing down reasons for entering or closing positions gives you an edge to filter losing trades and try to find a common mistake of yours, and thus gives you an option to optimize your strategy, and in turn maximizes your profits, or further minimizes your drawdown. This is how you develop your trading skills.
4) Get used to using stop orders
What happens if the price action goes against you? The ideal answer is, to accept the loss. It is impossible you will get all your trades winning, that is the nature of the market. However, by accepting losses and moving on with other trades, you’re giving yourself a bigger chance to recover small losses. Adding to losing positions is something that could raise your
drawdown, and even more risk your whole portfolio.
5) Quantify risk
How much should you lose on any specific trade? If you’re trading your own money, you’re the one who should answer this question. But hence you’re reading this, you’re probably interested in trading with a forex prop firm. Only then, you should know how much is the maximum that you should lose on any specific trade, or day. By quantifying risk, you know your limits and thus control your position sizing accordingly.
6) Organize your trading time
Although trading is a job that could be handled anytime, anywhere, and using any device with an internet connection. Setting a specific time to trade during the day according to your
lifestyle, increases your focus on trading and avoids distraction. By following the same strategy, during the same time every day, using the same device adds to your consistency and reliability of how well your performance indicates your trading skills and proves that it isn’t just random performance that might fluctuate if any of the factors changes. 7) Practice on paper trading
The last step in this process is actually practicing the previous steps, on virtual funds. Prop firms usually include this step as part of the evaluation. Both you and the prop firm should be confident enough in your trading skills, and that you’re able to generate the target profits within the allowable drawdown percentage.
Once you’re done following the steps, you are now ready to subscribe at a prop firm. You can register on our website www.RivaFx.com to join our online evaluation process.