The million-dollar question many people ask themselves is, how to become a better trader? There are many possible answers. For example, finding yourself a mentor, designing a proper risk management strategy, or learning to get your emotions out of the way, just to name a few of the things that will take you to the next level. But what if there is an affordable and easy way to cover all those essential factors and more to help you become a better trader? Fortunately, there is. This guide explains how a funded trader program can help you improve your trading performance without any risk.
Last updated on March 15, 2024
Follow a Strict Risk Management System
Funded trader programs are based on a set of trading rules. They are designed to account for the most typical traits and flaws of different trader profiles. The goal of the trading rules is to help traders maintain a trajectory of performance that will make them successful, not only throughout the funded trader program but in the long term. Alternatively, the trading rules help set the foundation to build a sustainable trading performance, regardless of the market.
Furthermore, trading rules teach discipline. By adhering to them, traders can better control their emotions and avoid chasing high-risk trades.
Some people argue that following strict trading rules is a two-edged sword that, alongside all benefits, might make your trading too rigid. For example, rules like the daily loss limit can make traders think twice before pursuing a high-risk-high-reward opportunity. However, learning to follow such a rule will prove invaluable for your portfolio in the long term.
Participants in Earn2Trade’s funded trader programs have also raised concerns that the trading rules can be a reason for failing the tests in the end. And this is precisely the goal of the rules. They aim to create a realistic trading environment to the greatest extent possible. That way, the trader can prepare in the best possible way for the reality they will face when trading live. Furthermore, it is always better to fail on the training ground. If a trader can’t strictly follow the risk management system required by our funded trader programs, he will have a hard time making it long-term when trading the live markets.
Have A Profit Goal to Meet
As individuals, we try to build the different aspects of our lives around specific goals. To get the job we desire, we educate ourselves. When we’re trying to live a healthy lifestyle, we train. We save money if we’re trying to put our kids through college. All these goals have in common: they sit at the end of a journey.
Things are no different when it comes to trading. If you don’t have a clear goal, you’ll be unable to create a proper plan and design the steps to put it into action.
For example, a goal might be ending the month with a 5% profit. For a $5,000 account, this would mean a monthly profit of $250.
However, make sure to start small and have realistic goals. Otherwise, you will feel unsatisfied and anxious to hit a target that might be out-of-reach by design. The harder you try to pursue an unrealistic goal, the greater the risk of worsening your trading performance. Whether a particular goal is realistic depends on the trader’s style, the traded asset, the current market environment, and more.
Working towards your goal steadily instead of looking for a home run with a one-off trade is essential. This lesson is something that Earn2Trade’s funded trader programs teach you from the start. In the case of the Trader Career Path® program, the profit goal you have to reach to pass the test is between 6% and 7%, depending on the account size. For example, to pass the test for an account with virtual starting capital of $25,000, you need to reach a profit goal of $1,750 or 7%. Of course, you can always shoot for the stars and aim to hit even greater profits, but you should also bear in mind the daily loss limit requirement.
Have Daily Loss Limit
Having a daily loss limit rule in place protects you from losing excessive capital in a single day, which is usually the most common and devastating mistake for beginners. There can be several reasons for losing too much of your capital, including revenge trading, letting emotions get in your way, or simply being greedy.
So, how can having a fixed daily loss limit help in such situations? Let’s say that you have an account balance of $5,000. If you set a rule not to lose more than 3% of the capital per day, this means you will limit the potential losses to $150.
While this might sound reasonable on paper, many traders struggle to follow it in practice. Bear in mind that having a daily loss limit is an effective ingredient of your risk management strategy only if you can follow it unconditionally. Alternatively, if you lose those $150 in the first two hours of the daily trading session, you simply have to halt trading for the rest of the day. Otherwise, you might end up trying to compensate for the losses and lose even more. In the end, you risk entering a downward spiral of losses that can quickly wipe out your portfolio.
Earn2Trade’s Trader Career Path® program is a great way to learn how to set and comply with a daily loss limit requirement. For all accounts, the maximum daily loss limit is set at 2.2%. In absolute terms, this means that for the $25,000 account, for example, you are allowed to lose no more than $550 per day.
The key to this, as well as all trading rules, is to follow them consistently. The repetition of this process will program your brain to naturally avoid breaking the principles of your risk management strategy.
Set-up a Maximum Drawdown Rule
Other than just keeping an eye on your day-to-day profit and loss, you should also make sure to have a plan in place on how to grow your account in the long term.
A handy rule in that sense is the maximum drawdown. It refers to the amount of money by which your current trading account balance is allowed to go below your highest trading account balance. Sounds too blurry? Let’s add some numbers.
The maximum drawdown of the $25,000 account of the Trader Career Path® program is $1,500. Let’s imagine that you end one of your trading days with an account balance of $30,000. In that case, it is allowed to drop down to no less than $28,500, open equity included.
The idea of having a maximum drawdown is to help you grow your portfolio sustainably and preserve your profits over time. Alternatively, this rule teaches you to think more strategically about your long-term losses and build a better plan for avoiding them.
Think of this as when you are climbing the stairs. If you climb two, three, or five stairs forward and just a single one back, you will be making steady progress towards your goal.
Limit Your Number of Contracts
A critical ingredient of any efficient risk management strategy is a limit on how many contracts you can trade. Earn2Trade’s funded trader programs teach this basic principle by requiring you to follow a progression ladder. The rule maintains the maximum number of contracts you can have open at any given time based on your current account balance.
As a rule of thumb, the bigger the account balance is, the more open contracts you can have. For example, the maximum for the $25,000 account is up to 3 contracts, while for the $50,000 one, the rule allows for up to 6 contracts at once. The reasoning behind this rule is that things can quickly go out-of-hands for a trader with a smaller account who maintains many open positions simultaneously.
So, how is this helpful? First, it helps limit the losses when your performance isn’t up to standards. Furthermore, it improves your gains when you are on a streak of winning trades.
Also, it helps you ensure a calmer environment when trading in times of excessive volatility. Just think about it – it would be way easier to manage three open positions instead of 20 when the market is running wild. The more control you have over your open positions, the more protected your portfolio is, especially when it comes to beginner traders.
Practice Your Trading Strategy With Live Data
A funded trading account is a place where you can learn from your mistakes instead of having to risk your own money. In other words, you get to test the real market without having to worry about your capital.
Why the real market? Because a funded trading account allows you to practice your strategy with live data and examine how it would behave on a real account.
Many traders learn that their strategies aren’t ready yet to perform in real market conditions the hard way. And the market wisdom shows that seeing your strategy fail and lose you money can significantly affect your mindset. That is why it is essential to invest enough time and effort into mastering your trading strategy with live data before applying it in the real world.
Earn2Trade’s programs bring you the comfort to test different trading scenarios and improve the performance of your strategy until you address all its flaws. Alongside mastering the art of trading, you will be able to simultaneously work towards getting funded.
Get Funded While Improving
Programs like the Trader Career Path® are the best way to become a professional trader, even if you don’t have extensive experience. The program is designed by professional traders who know the markets and understand risk management inside-out. It’ll form a solid foundation for you to build your trading skills.
If you succeed in passing the exam, you will receive an offer for a funded trading account. At that point, you will be able to trade on behalf of a prop trading company. You also retain 80% of the profits without putting even a dime on the line.
If you wonder how much capital you can get through a funded trader program, let’s take the Trader Career Path®, for example. Upon passing the evaluation, you’ll receive a guaranteed funding offer with the initial capital in your funded account matching the evaluation account you chose. This initial capital can be scaled up to either $200,000 or $400,000, depending on the program. For instance, candidates who pass the test with a $25,000 virtual account will receive $25,000 in funding and have the opportunity to upgrade to a $200,000 funded account. Similarly, those who successfully complete the $50,000 challenge can progress from the initial $50,000 in funding to the top-tier $400,000 account.
Furthermore, you won’t have to get yourself licensed or pass long-lasting certification programs since the program can be completed in just 10 days.
