What To Do When You Fail Your Prop Trading Challenge

Hey there folks! Andrew Bloom from Disciplined FX, here. Heads up, this post contains affiliate links to products that I have selectively chosen to help you meet your trading goals!

Why I Decided to Learn to Day Trade

For those who are new here, I’ll give you a little background – I first started learning how to day trade after developing a chronic illness and watching the months of unemployment accumulate as I was not able to work. I needed to find a way to pay for medical care and to cover my bills. I first started with day trading stocks, and after some time, gravitated toward the world of Forex scalping. 

One thing I appreciate about Forex over stocks is that I can focus on one or two currency pairs that have reliable volume instead of needing to scan for and select the most opportune stocks from thousands of choices. 

It is my goal to make my day trading style as simple as possible with as little time in front of the charts as possible, so as to minimize frustration and to be able to free up the rest of the day for more meaningful activities, such as exercising, resting and doing research and writing for my Ph.D. 

Once I became profitable, I decided to start a business that could help teach traders how to hone trading discipline in order to achieve profitability while also creating a safe space that honors and protects diversity without feeding into some of the more toxic culture that tends to dominate day trading social media.

Just recently, I also started getting into prop trading and passed the FTMO $200k challenge last month, so I want to share that experience with you all and do what I can to help you pass prop trading challenges, as well. 

Lessons From Failing a Prop Trading Challenge

That said, let’s dive into today’s topic, which covers the more lothable experience of what to do when your prop challenge fails. 

Let me start off by saying that I only passed the FTMO challenge after failing my first two. 

Here’s what happened. 

My very first FTMO challenge was a loss due to my own misunderstanding of the challenge rules. 

I was under the impression that the 10% and 5% loss limits were for closed trades, not open ones when in fact your running equity always needs to stay above that 5% daily and 10% overall limits. 

What really sucked was that I was up 8% on that account and was booted out of the challenge because my SL hit 5.5% on the day. Doh! 

Feeling a bit anxious about this major loss, I immediately signed up for a second challenge. 

This one turned out to be a dud too, as my strategy at the time depended on the early wins from the beginning of the month to withstand some of the string of losses that occurred in the middle of the month. 

As my account dwindled, my percent risked dwindled as well, and the wins that eventually came weren’t enough to keep the account afloat. 

Within a few weeks, I failed that account as well. 

This second experience, however, taught me two things: 

  1. It made me think more deeply about the monthly cycle of my trend following strategies. Something about the setup of my strategy showed better performance at the beginning of the month and worse experiences near the end. I needed to be able to adjust my strategy for a better distribution of wins and losses that spread out over the course of the month. 

Keep in mind that when you trade a challenge, you will start with a new account during your verification stage. Thus, your strategy needs to be able to perform and hold during any time of the month. 

2. I realized that I needed to pay a bit better attention to how I used risk to achieve these goals. Normally, I would risk a set 1.5 – 2% per trade, with a strategy that gave only one or two signals a day, but I considered some of the benefits of adjusting this risk to help with the ebb and flow of avoiding loss limits and reaching towards profit targets. 

Someone who writes extensively on the importance of risk management is Dr. Van K. Tharp. His books Super Trader, and Trade Your Way to Financial Freedom, were both incredibly useful resources I studied when I first started to learn how to trade. 

By the way, I’m going to give you all a little tough love and say right now that if you only try to learn about markets through videos, you’re missing out on one of the most cost-effective ways to learn by way of reading books. 

Think about it from the author’s perspective. 

There’s a certain level of introspection and room for editing that comes with writing and publishing a book that might get passed over when creating quick, social media-based content that’s meant to drive views and likes. 

If you don’t already, I highly recommend reading at least one book on trading each month while you’re still searching for your footing in the markets. 

Passing the FTMO Challenge

For my FTMO challenge that landed in success, I had both the benefit of starting at the beginning of the month, but also adapted my strategy to flex with the inevitable ebbs and flows that came with some losses later in the month. 

I also started out by risking more on the trades at the beginning of the month than those that occurred in the middle. 

This ultimately led to my success with passing the challenge. 

So this reflection on my experience gives you some context for what I’m going to recommend next. 

What to Do When Your Prop Trading Challenge Fails

When you find yourself staring at those painful red words and numbers that confirm the failure of your challenge, consider doing these three things. 

1) Take some time off

Whether it’s a week, a few weeks, or a month, give yourself first the room to grieve a little, reflect on what led to this loss, and begin to sit down and dissect both your trades and your strategy. 

This is something I wish I did so as to avoid the failure of my second challenge. 

Even FTMO recommends taking a break when they e-mail you regarding your failed challenge.

2) Conduct a review process

You’ll want to ask yourself some questions that can lead to creative inspiration, epiphanies, and lessons learned. 

Some questions that can be useful for this include: 

What mistakes did I make, that don’t have anything to do with my strategy, contributed to this loss? 

To what extent did my discipline or emotions I felt while I traded contribute to failing the challenge? 

And lastly, What were some of the weak points in my strategy – whether this has to do with the day or time traded, my choice of currency pairs, risk strategies, or other mechanics in the strategy? 

3) Take what you discovered from these questions and seek out solutions. 

Get started backtesting if you need to change elements of your strategy. 

Reach out to a trading mentor or friend if you need help with discipline. 

Also, it’s useful to consider whether this particular trading challenge is right for you. 

Keep in mind that different prop firms have different trading rules and requirements for their challenges. (Another firm I’m currently taking a challenge for is Fidelcrest)

Now that you have some experience with prop trading challenges, It may be worthwhile to seek a swing trading account or firm that doesn’t restrict your day trading style to allow for more time for your trades to unravel.

Or perhaps it makes more sense to avoid a challenge altogether and seek a slow growth to prop trading via Funding Talent’s program. 

It’s okay to research other firms and see what fits your style of trading. 

But be sure to place more emphasis on your own responsibility and strategy before placing singular blame on the challenge, itself. 

Losing out on a few hundred to thousand bucks never feels great, but it’s also part of what traders like to call your “trading tuition,” those losses that lead to more knowledge and experience of how trading works. 

So I’ll end with a bonus recommendation and encourage you to not lose hope. 

Try to avoid taking the failure personally – there are plenty of ways you can build your skill up as a trader, so if you’re feeling like a failure right now, it doesn’t mean that you will always stay at this level of trading. 

Something that tends to separate successful from unsuccessful people when you consider mindset and behavior, is that successful people don’t dwell in the problem- they are more likely and more quickly switch to problem-solving mode. 

So Keep looking for ways to improve and most importantly, stay honest with yourself as to the patterns and ways of thinking that may hold you back from finally profiting in the markets. 

I think self-reflection is the ultimate boon to your growth as a trader. I hope you found this information valuable and please be sure to subscribe for more discipline-focused tutorials on profiting in Forex markets. I wish you all the best of strength and luck, and I’ll see you in the markets! Take care.