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October has been my choppiest month of trading in a very long time. Somehow, I feel like I forgot how to win. Such a weird thing to say when you have been studying the markets for a decade. I think any trader will hit this phase in their trading career where you just can’t seem to win for whatever reason.

This is where being able to look back and review your trades becomes invaluable since you may pick up faulty behaviors in your trading process. For myself, after looking back at all my trades, I realized something changed in my process. I was essentially trading off charts using only technical analysis without taking into consideration all the fundamental macro analysis which I usually review every month then follow how it plays out on a daily basis. I was essentially trading blind and ended up losing almost all my trades and consequently blowing multiple 25,000$ FTMO Challenge accounts.

Once you have identified your faulty processes, you can now grow and become a better trader, that is if you actually apply or correct your errors. I personally decided to go back to one of my earliest systems which was consistently profitable, a system which dates back at least +5-6 years ago and collecting dust ever since.

As you can see from the history, this system is a money maker and I think it is mostly due to having specific trading conditions/triggers while searching for patterns on the market. Using the visual analysis, we realize that using partial close might actually be limiting us in our profit per trade since we won 3 trades and lost 2 trades for a total of 5 trades. By using a 2:1 ratio, 2 units win: 1 unit loss, we would then have 6 units won – 2 units loss, so 4 units in profit. Considering each unit is 50$, we would be at +200$ profit. With using partial close, I ended the week at +80$ in profit. That’s more than 2x our profit left on the table.

An alternative would be to use partial close 70% of the trade once it reaches the 2:1 profit level instead of using 70% partial close at 1:1 profit level or sticking to a 2:1 ratio and no partial close, which would then lead me to a minimum of 1 out of 3 trades in order to be profitable in the long run.

Our goal here is to have a system with a minimum of 35% winning rate. This is the minimum threshold which should be accepted based on extensive Monte Carlo analysis where we are risking no more than 50$/trade with a 2:1 Reward: Risk ratio on a 10,000$ account. We can prove this statement by using the following equity curve simulation tool: http://www.equitycurvesimulator.com/

You can generate multiple simulations using the following parameters and you will find it rarely goes in the negative.

With a win probability of 35%, you almost always end up making money if you stick to solid 2:1 ratio, no partial close.

Provided you are using a system which has an edge on the market, or at least have the perception it has an edge, let’s see what happens when we change the win probability to 40%. After all, you shouldn’t be trading a system which you don’t believe it has an edge on the market. However to be conservative, we will crank up our win probability to 40%. Let’s see what we get:

Using a 50% win probability, you basically cannot lose:

Now, a 60% win rate will take your account to next level, which basically what we have right now using our short history of 5 trades, 3 wins, 2 losses:

In conclusion, if you want to make steady money, use a 2:1 win/loss ratio, no partial close and find a system which actually has an edge on the market with a winrate of at least 35%.

A month later, here goes part 3.

These past few weeks were incredibly hectic, trying to balance trading and opting for a healthier lifestyle by combining daily exercises and cleaner diet.

Nonetheless, this shouldn’t stop us from pursuing our own goals and dreams, one step at a time. I have now failed 3x the 25,0000$ funded account challenge under prop firm “A”. Mostly my mistake, I didn’t take into account the drawdown rule which stated trailing relative drawdown. I think in previous post I went over the difference between trailing drawdown and absolute drawdown but in a nutshell, trailing will move your stop out level as you grow your account, while absolute drawdown means your stop out level is fixed and based on initial starting balance. Most, if not all prop firms require a 10% drawdown rule, however, in my opinion, going for a trailing drawdown is the worst mistake you can make. Here’s why.

Scenario A: Prop firm A offers 10% trailing drawdown for 25,000$ account. Your starting stop out level is 22,500$. If your account goes below this equity level you’re out and done, challenge failed. However, if you manage to go let’s say 26,000$ (1,000$) profit, your stop out level now becomes 23,400$. You have just lost a buffer of 800$. This means, you could make 40,000$ profit and the moment you lose 2,500$ from your highest achieved level, you lose the account. This doesn’t seem right because while you lost the account, your prop firm just cashed in all your money instead of you. 1 bad day and you lose all your work. Makes absolutely no sense.

Scenario B: Prop firm B offers 10% absolute drawdown for 25,000$. Your starting stop out level is 22,500$. If your account goes below this equity level you’re out and done, challenge failed. However, if you manage to go let’s say 26,000$ (1,000$) profit, your stop out level is still 22,500$. You have just increased your buffer to 3,500$. This means you can now have up to 3,500$ of bad trades to be stopped out instead of 800$ with prop firm A. This is a game changer. This means, you could make 40,000$ profit and the moment you lose 42,500$ from your highest achieved level, you lose the account. The money which you worked for stays available for you, instead of being closed out and forced to give all your money to prop firm A.

It took me 3x tries and a total of 750$USD spent to understand this cold hard truth. I would always go to 26,000$-ish, have a few bad trades going back to 25,000$ and instead of “starting” the challenge over again, assuming I still had another 2,500$ buffer to lose (22,500$ stop out level), my account gets closed because my trailing was moved to higher levels since I reached X amount in profit.

I strongly advise against signing up with any proprietary trading firm which has a trailing drawdown structure. You will get bad days, its inevitable, protect your winnings.

I have now changed to another prop trading firm which is also the most popular one out there, FTMO. FTMO uses absolute drawdown but is considered the hardest of the challenges available due to their stricter rules, such as having to close trades on weekends, not being able to trade during news events and a 2 phases process, 10% in 30 days then 5% in 60 days. Most prop firms will give you anywhere from 6 months to 1 year to pass the challenge. Keep in mind that institutional funds make no more than 10-12% yearly.

Recently, they have added FTMO Swing Account which now allows you to keep your trades open over the weekend and can now trade during news events using 1:30 leverage instead of 1:100. From my experience, 1:30 leverage is more than enough to flip small accounts by scaling in on trades and make home runs just like I did this week, see below:

The drop at trades 100 to 120 was exceptionally very difficult to accept. The Bank of Japan decided to intervene in the market for the first time since 1998, causing extreme spikes in the market and hitting all my stoplosses in under 5min only to end up in the correct direction.

That’s the reality of forex trading and why it one of the most difficult market to trade due to its liquidity and volatility.

In this picture, I made +2000$ in a single day by constantly opening new positions as soon as current position reached its profit target, not even scaling in on trades, just placing bets back to back and riding the wave. +2000$ in a day, no scaling-in, and using 1:30 leverage. I think any serious trader should opt for this FTMO Swing account, you only need to be “lucky” once, and by that I mean purposely taking trades with more exposure to meet the 10% under 30 days. 5% in 60 days seems reasonable, only need to make about 150$ a week. (1250$/8 Weeks = 156$ per week)

The account is now at 26,000$, only need another 1500$ and Phase 1 is completed.
To be continued…

Last week I was able to make 2 very good trades which left me with 1 only trade to go in order to get the funded account since I am using compound risk as growth model, see Part 1, to achieve our 10% profit target.

Unfortunately, I got trigger happy and took a trade on Sunday night not long after market just opened. Trade went in the red, had to close according to plan. However, I didn’t pay attention to the trailing drawdown rule vs absolute drawdown rule. The trailing drawdown means, you cannot go lower than x% from the highest balance achieved while absolute drawdown is the maximum loss you can occur on your account base on the initial account balance.

Let’s take for example a 25,000$ with 5% trailing and absolute drawdown. If you reach 26,000$ with trailing you get stopped out at 24,700$, now with absolute drawdown you get stopped out at 23,750$ no matter the highest balance achieved. Because I use bigger risk for every win, that 3rd trade which turned into a loss really hurt the account growth as I now only had less than 500$ to recover.

To be honest, I think it was more than enough to win the account on first try but after looking back at what happened, I believe I was just too in a hurry to win the challenge in 3 consecutive winning trades. I ended up over-exposing myself trying to make it all back at once and eventually called it quits after a series of very bad trading.

I have now purchased another trial challenge account and will hopefully be able to apply more self control.

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After 3 months of hiatus, it’s time to get back on the trading scene and start collecting some money. As you know, I trade a very specific style combining both fundamental macroeconomic views and technical analysis with a simple secret behind, data-engineering.

Last year, I spent 4-6 months updating my Excel datasheets with the only objective of making it as streamlined as possible, where at any given time I can run up my own numbers and eliminate any noise or interference such as watching or reading the news from popular channels or trade someone’s else idea, 2 strategies which will make you lose tons of money.

This being said, I decided to try my luck at doing those funded trading account challenge with a proprietary trading firm going usually from 25,000$ up to 500,000$ funded account. In order to get one of those accounts you must pass a trial period where you need to make generally 10% with 5% risk, most will have time limits where you have 30 days up to 6 months to complete the challenge. Once completed, you are rewarded with a “live” account and can withdraw just like any other regular account.

However, make sure you read all the rules which must be followed in order not to get disqualified. Most prop firms will require you to put a stoploss on all your trades and you cannot carry trades over the weekend, must usually close all trades on Friday by 4-5pm. I should warn you, most people fail at these challenges because 10% gains/5% risk under 6 months is very difficult. Think about it, institutional money and investment funds make on average 10-12% a year, if they are lucky. You need luck or a serious trading plan, hence why a proprietary trading firm is so lucrative since more than the majority who sign up fail and those who win are usually already profitable but looking for a way to fast track their growth.

Speaking of fast-tracking your growth, I have myself just signed up to one of those challenges. I am trying my luck at a 25,000$ funded account. I figured, if it cost you 200$ a few times to get 25,000$, I don’t see how it can play against you if you actually know how to trade. Hear me out, 200$ to 25,000$ is 125x, meaning that in order for you to lose money you would need to try and repetitively fail for 125x consecutive times. Sure you only get to risk 4-5% which is about 1000$ and not actually 25,000$ but the goal here is to be able to put in those bigger volume/lots number, unless you can afford to put a 2.00 lot trade on the fly which I think is either 20$/point or 200$/point. In my opinion, if you fail more than 10x in a row, you need to go back to the drawing board for a few months, re-think your strategy, test it, run it and retry the challenge.

Here is my strategy. In order to make these numbers happen, you must understand that these rules were meant to make it very difficult for you to pass. Because of this, people tend to switch their strategy in order to meet the platforms requirement and therefore deviate from the process they know so well and eventually start making mistakes until they break one of the rules and end up disqualified. These challenges are meant for you to overtrade, and as we all know, overtrading will blow your account.

I will show you how to win these challenges in less than 4 trades maybe 5 depending on the maximum lot size allowed with your platform. The idea here is to risk whatever you won+risked on previous trade using a 1:2 reward/risk ratio meaning you risk 5$ to get 10$. The whole standard of saying 2:1 ratio is non-sense since it would be 2:1 risk/reward. I am not risking 10$ to make 5$, it is clearly the opposite way around but people never really pay much attention to it since it is now a faulty standard.

Let’s do an example with a 25,000$ account:

Here on the first trade we risk 125$ in order to make 250$. On the second trade, we will risk 375$ (125$ initial risk+250$ just made) to make 750$. On the 3rd trade, I should be risking 1125$ in order to make 2250$ but as you can see, that would make our total balance to well above the 10% target profit mark, meaning we are risking more than necessary to win this challenge. I have adjusted the risk of my last trade to 875$ risk with 1750$ reward which would bring the total account to 27,750$ just above the 27,500$ required. With this strategy, you can win these challenges in less than 5 trades depending on your risk tolerance level instead of overtrading for months and most likely end up breaching one of the rules and losing the challenge.

Of course, in order to do this you must actually believe that you have a winning system because starting over after moving up levels really suck and can possibly push you to doubt your own trading abilities, hence why you must see it as, I have X many times to try this challenge to make it worth it without changing your trading strategy which has been working well for you.

Another very important aspect to this trading style is to have a lot size calculator. Each forex pairs available have a different pip value. Meaning that you can trade a pair which a pip value is 0.67 and another which is 1.04. What this means is that you must play with your lot size and target profit to determine the right lose size for your trade. A 1.00 lot trade on EURJPY and 1.00 lot trade on GBPUSD will not have the same return over a 60 pip profit run. Therefore you must adjust your size according to the risk/profit for the current pair.

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Here is last week’s results:

Trade 1: EURCHF, Sell, Win, +250$
Trade 2: GBPCHF, Sell, Win +750$

As you can see, lot size calculator becomes so important when using this strategy. Here, I made a mistake on EURCHF selling with 0.55 lot trade when instead it should’ve been 1.25 lot trade. Had I not corrected my mistake , while profitable, trade would’ve returned me 117$ instead of 267$, quite the difference.

All I need now is another win and the 25,000$ funded account is mine.

To be continued…