In the evolving world of financial markets, proprietary trading firms (prop firms) have opened the door for individual traders to trade with firm capital rather than their own. This model allows ambitious traders to maximize their potential, provided they can demonstrate discipline, consistency, and profitability. Platforms such as Pax Market Funds give traders the chance to access large funded accounts, but before you can enjoy those benefits, you must pass their evaluation or trading challenge.
The key to success lies in building a strong, disciplined trading strategy. In this blog, we will explore step by step how you can create and refine a trading plan to pass prop firm challenges and achieve long-term success in funded trading.
Why You Need a Trading Strategy in Prop Trading
A prop firm’s primary goal is to protect its capital while rewarding skilled traders. That means they place strict rules on maximum daily losses, overall drawdowns, and risk-to-reward requirements. Without a clear trading strategy, many traders fail due to:
Overleveraging
Emotional trading decisions
Breaking firm rules
Lack of consistency
Having a strategy ensures you trade with discipline, minimize unnecessary risks, and work toward steady, repeatable results—qualities that firms like Pax Market Funds look for in funded traders.
Step 1: Define Your Trading Style
Not every trading style fits every trader. Before building rules, decide what suits your personality, schedule, and risk tolerance.
Scalping: Very short trades (seconds to minutes). Requires focus and speed.
Day Trading: Holding trades for a few hours, closing positions daily.
Swing Trading: Holding trades for days or weeks to capture medium-term trends.
Position Trading: Long-term trades based on fundamentals and big trends.
Prop firms like Pax Market Funds often allow a variety of approaches, but success comes when you commit to one that matches your temperament.
Step 2: Choose Your Market
Prop firms provide access to Forex, indices, commodities, and sometimes crypto. The best approach is not to chase every market but to master a few.
Forex pairs (EUR/USD, GBP/JPY): High liquidity and steady volatility.
Indices (S&P 500, NASDAQ): Popular for trend-following traders.
Commodities (gold, oil): Great for breakout and momentum strategies.
By focusing on 1–2 markets, you can learn their behavior and trade with greater confidence.
Step 3: Develop Entry and Exit Rules
A successful strategy needs clear, objective, and testable rules. Example:
Entry Rule Example
Trade only in the direction of the higher-timeframe trend.
Enter when the 20 EMA crosses above the 50 EMA, with RSI above 50.
Exit Rule Example
Take profit at a 2:1 risk-to-reward ratio.
Close the trade if a candle closes against the trend on the 1-hour chart.
Rules should leave no room for emotional judgment—just straightforward execution.
Step 4: Master Risk Management
Prop firms value risk management more than big profits. Even if you make money, breaking the rules leads to disqualification. Key principles include:
Never risk more than 1% per trade.
Keep daily losses within the firm’s limit (often 4–5%).
Use stop-losses for every trade.
Adjust position sizes according to volatility.
Think of risk management as your shield—it keeps you in the game long enough for your edge to play out.Step 5: Backtest and Forward Test
No strategy is complete without testing.
Backtesting: Apply your rules to historical data to evaluate profitability and drawdowns.
Forward Testing: Try your strategy in a demo account under live conditions.
This helps you see whether your system holds up under different market conditions—crucial for prop firm evaluations.