Video Transcript:
Hey guys, it’s Sterling here from Trader Dale, back for another video about prop firms. In this video, we’ll discuss how to succeed in the prop firm environment. A lot of people pass a prop firm challenge without much trouble. There’s much less stress in that environment, and people tend to trade more freely. Some traders blow up a few accounts before eventually passing a challenge—that happens too. Either way, getting a funded account is something that happens regularly. But how do you hold on to that account? Getting funded isn’t necessarily the hardest part. The real challenge is trading consistently over weeks and months, being able to generate steady profits rather than just getting a few wins here and there.
Profitable trading can look good on paper, but the stress involved—like position sizing, flipping, and reversing trades—can be overwhelming. Some forms of trading may be profitable for a short period but unsustainable over the long term. You need to perform consistent actions in a structured way. That’s what we’re going to discuss.
A lot of this insight comes from a study of 177,000 forex traders. While some of the stats may differ slightly from what applies to many of you trading ES and NQ, this information is still extremely valuable. Prop firms analyzed 177,000 traders and identified who was getting payouts and, more importantly, what they were doing differently. That’s what we’re going to cover.
The first thing to discuss is average win versus max loss. This is closely related to the reward-to-risk ratio and is an essential metric. It helps determine whether you allow losses to get out of control or actively manage downside risk. Ideally, max loss should be half of your average win—that’s a lofty goal, but a good one. If your max loss and average win are at a 1:1 ratio or better, you’re in a strong position. Most prop firms provide a statistical breakdown that allows you to evaluate this metric.
Another key factor is profit factor or reward-to-risk ratio. The study found that 60% of payouts went to traders with a reward-to-risk ratio between 2:1 and 2.5:1. That seems to be the sweet spot. If you’re at 1:1 on your closed trades, it’s worth analyzing further. Some traders, like Dale, may enter trades with an initial 1:1 ratio but adjust their stops, resulting in a different reward-to-risk ratio on closed trades. Understanding your actual reward-to-risk ratio, not just your initial one, is crucial.
Win/loss duration is another closely related concept. Typically, if profits are double the size of losses, the holding time will be about twice as long as well. The study found that 60% of payouts went to traders who held winning trades at least twice as long as losing trades. This is an easy statistic to check in your trading records. If you frequently hold trades for very short periods, it might indicate impulsive trading rather than following a structured plan. A well-defined strategy is crucial—otherwise, you might find yourself constantly flipping positions, chasing the market, and ultimately losing money.
Now, let’s talk about quality over quantity. While the study suggests that 60% of payouts went to traders who took 10 or fewer trades per month, I think this is somewhat overstated. Forex traders tend to be more trend-biased, holding trades for extended periods. However, for day traders in futures markets like ES and NQ, the key takeaway is not necessarily to limit yourself to 10 trades per month but to avoid excessive trading.
Working with the Funded Trader Academy, I see traders’ performance records all the time. A typical pattern is three to seven trades in a day, which is fine. But then I’ll see traders take 60, 80, or even 300 trades in a single day. That’s gambling, not trading. Even if you turn a profit on such a day, that kind of trading can quickly spiral out of control. My recommendation? Set a max of three trades per day—especially if you’re struggling to be profitable. This forces you to act like a sniper, waiting patiently for only the best setups. Over a 21-day trading month, that puts you at about 60 trades per month—a reasonable number.
Another critical point is following the trend. The study found that 56% of payouts went to traders who placed 90% or more of their trades in one direction. If you frequently alternate between buying and selling within the same session, you’re likely chasing momentum and trying to recover losses rather than following a structured approach. Profitable traders define market direction before they start trading. Do you have a pre-market routine? Do you determine the market bias in advance? If not, that’s something to work on.
Limiting the number of markets you trade is another key factor. The study found that 43% of payouts went to traders who traded just one market, and 76% went to those trading three or fewer markets. If you’re trading more than three markets, you may be spreading yourself too thin. Most successful traders specialize. While there are always exceptions, the best approach is to become consistently profitable in one market before expanding to others.
Now, let’s discuss win/loss ratio. The study found that 80% of payouts went to traders winning 60% or more of their trades. Many new traders fixate on win rate, thinking a high win rate is the key to success. But profitable traders balance win rate with reward-to-risk ratio. You don’t need a 90% win rate. Many top traders operate within the 60-65% win rate range with a 2.5:1 reward-to-risk ratio. If your win rate is low but your reward-to-risk is high, you may need to adjust your strategy.
Next, let’s talk about losers per day. The best traders typically take no more than three losing trades per day. If you hit three losses in a day, consider stopping and coming back the next day. After multiple losses, emotions take over. It’s easy to go on tilt, chasing the market and making irrational decisions. Losses trigger deep-seated emotions, often rooted in past experiences, making it difficult to remain objective. Implementing a three-loss limit helps prevent emotional spirals that can destroy accounts.
Ultimately, trading is about discipline and execution. You can know all the right strategies, but if you don’t have the discipline to follow them, they won’t matter. Go back through your trades and analyze them:
- Are you consistently following your plan?
- How does your win/loss ratio compare to profitable traders?
- Is your reward-to-risk ratio sustainable?
- Are you overtrading?
- Are you cutting losses quickly and letting winners run?
By identifying and fixing weaknesses, you’ll see significant improvements over time. Start by fixing the biggest issues first, then refine the details. Trading success comes from logical adjustments and disciplined execution.
That’s it for this video. Hope it was helpful! More content coming soon—see you in the next one. Until then, happy trading!
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