5 Main Reasons for Failing the Prop Firm Challenge & How to Overcome Them
Hello, traders who are struggling hard to pass the prop firm evaluation phase!
If you are reading this article, chances are you are one of the many talented traders who have a solid strategy on a demo account, yet consistently fail prop firm challenges repeatedly. The frustration of spending significant evaluation fees, only to see your account "blown" due to a drawdown violation or unachieved profit target, is completely natural.
As a researcher and financial analyst, I want to provide an honest and straightforward perspective. Prop trading offers an extraordinary opportunity to access large capital, but the failure rate in the evaluation phase (Challenge) is very high, estimated to reach 90-95%.
The question is, why does this happen? Is your strategy bad? Probably not. Often, the cause of failure lies not in the trading strategy itself, but in execution, risk management, and most crucially—your psychology.
Let's dissect deeply and systematically the main reasons behind your failure, and how to fix them.
1. The Most Fatal Technical Failure: Unmanaged Drawdown
Prop firms are designed to test your ability to manage risk before testing your ability to generate profit. Ironically, the majority of traders fail prop firm challenges not because they can't profit, but because they violate the established risk limits.
1.1. Miscalculating Daily Loss Limit (DLL)
The Daily Loss Limit is the rule that most often causes challenge accounts to blow up. This limit is usually calculated from the starting balance of the day or the highest equity ever achieved.
Many novice traders assume they can calculate DLL only from the initial balance. In fact, drawdown is calculated in real-time based on the running floating loss.
Case Example: If your account is $100,000, and the DLL is 5% ($5,000). You have already made a $2,000 profit in the morning. You open a large position in the afternoon, and even though you haven't closed the position, your floating loss touches -$5,001. Congratulations, your account has breached the rules, and your challenge is over.
Practical Solution: You must have a risk calculator that works in real-time. Never open a position without knowing exactly at what price point your account will violate the DLL. Focus your energy on capital protection. (You can read more about detailed calculation methods here: [How to Calculate Daily Drawdown So Your Account Doesn't Get Blown]).
1.2. Violation of Maximum Trailing Drawdown
Some prop firms use Trailing Drawdown, where your maximum loss limit moves up along with the profit you gain.
If you have achieved significant profit, your drawdown limit might have risen to the break-even point or even above the initial capital. If you then experience a loss, this limit will be calculated from your peak equity. Failure to understand this moving limit often leaves traders surprised when their accounts are blown even though they are still well above the initial capital.
2. Psychological Errors: The Biggest Enemy Causing You to Fail the Challenge
Prop trading puts you under time pressure (in some firms) and real financial risk (forfeited registration fees). This pressure disrupts the discipline you have built on a demo account.
2.1. Revenge Trading
This is the biggest culprit of failure in the trading world. After experiencing a loss, the emotional urge to immediately recover that loss (Revenge Trading) often dominates.
You end up forgetting the trading plan, taking positions with unreasonable lot sizes (Over-Leverage), and ignoring stop losses. In minutes, a small loss turns into a huge loss, and you immediately violate the DLL.
If you feel the urge to immediately avenge a loss, the best step is to close your laptop and step away from the charts for 1-2 hours. This discipline is the main differentiator between successful traders and traders who always fail prop firm challenges.
2.2. Overtrading and FOMO
The challenge profit target (e.g., 8% or 10%) looks very large, so many traders feel the need to enter multiple times a day (Overtrading).
Overtrading not only increases commission and spread risks but also forces you to take low-quality setups just because you are afraid of missing out (FOMO). Remember, prop firms do not require you to trade every day. They test quality, not the quantity of your trading.
3. Lack of Consistent Risk Management
Prop firms are a test of risk management, not prediction skills. Many traders forget this and focus 100% on entry strategies.
3.1. No Clear Trading Plan
Do you know exactly, before opening a position, where you will place your Stop Loss (SL) and Take Profit (TP)? And more importantly, have you calculated your lot size so that your maximum loss is only 0.5% to 1% per trade?
If you do not have a written trading plan that includes:
- Currency pairs to trade.
- Trading sessions.
- Maximum risk per trade (e.g., 0.5%).
- Risk:Reward Ratio (e.g., minimum 1:2).
Then you are not trading, you are gambling. Prop firms quickly eliminate this trading style.
3.2. Inconsistency in Lot Size and Risk
Many traders who have successfully made profits early on suddenly increase their lot size drastically to chase the remaining profit target.
For example, you are already up 4% with 0.5% risk per trade. You think, "4% left, I'll raise the lot size to 2% per trade, two successful entries, done!"
This action is very dangerous. One unexpected loss on a large lot can wipe out all previous profits and make you violate the DLL, and once again fail the prop firm challenge. Consistency is key.
Important to remember: In the prop trading world, strategy is just a tool. The main foundation is risk management. Why is that? You can find the answer in our article: [Why Risk Management Is More Important Than Strategy?]
4. Failure to Understand Prop Firm "Small Rules"
Every prop firm has slightly different rules. Failure to read these details often causes traders who are already profitable to be disqualified.
4.1. Consistency Rule Violation
Some prop firms apply a Consistency Rule, aimed at preventing "lucky gamblers" who rely on just one or two big trades.
This rule ensures that your trading volume or profit in one day is not too far from your average. If one trade contributes 50% of the total profit, you might be considered violating the consistency rule, even if you have reached the profit target.
4.2. Trading Time Limits and News Trading
Some challenges have minimum or maximum trading day limits. Additionally, almost all prop firms prohibit or strictly limit trading during high-impact news releases (High Impact News).
If you open or close a position 2 minutes before or after important news releases, and slippage causes you to violate the DLL, the prop firm will not give tolerance. You must always check the economic calendar.
5. Wrong Mindset: Treating the Challenge Like a Lottery
Many traders consider the challenge registration fee as a lottery ticket. They think, "I'll try trading aggressively. If I pass, profit. If I fail, try again."
This mindset is the perfect recipe for repeated failure.
5.1. Lack of Sense of Ownership
When you pay the challenge fee, you should not consider it a "paid demo account," but rather an initial investment in a new business.
Successful traders treat this challenge just as they would treat their valuable personal capital. They are meticulous, careful, and afraid of losing capital (both challenge capital and personal capital for registration fees).
5.2. Too Focused on the Final Result
Your main focus during the challenge should be the trading process that is disciplined, not the 8% profit figure at the end of the month.
If you focus on the right process—adhering to risk per trade, recording every transaction, and maintaining discipline—then the profit target will follow automatically. When you focus too much on the target (e.g., "Today must profit $1000"), you will become emotional and prone to mistakes like [Revenge Trading: The Main Enemy of Funded Accounts].
Conclusion: From Failure to Empowerment
If you often fail prop firm challenges, don't be discouraged. This is part of a rigorous selection process. Failure doesn't mean you are a bad trader, but rather that you haven't aligned your strategy with the strict risk management rules of the prop firm.
Here are concise steps to strengthen your next preparation:
- Revise Risk Management: Prioritize Daily Loss Limit and Maximum Drawdown. Know your limits per trade and calculate lot sizes with discipline.
- Strengthen Psychology: Recognize your emotional triggers. Apply strict rules to stop trading after reaching a daily loss limit (or after two consecutive losses).
- Study the Contract: Read all the rules of the prop firm you are joining, including consistency rules and news trading limits. Don't let your profit go to waste due to trivial technical violations.
Prop trading is a marathon, not a sprint. With a more meticulous, analytical, and disciplined approach, you will increase your chances of passing and finally becoming a successful funded trader. We at fxbonus.insureroom.com will always support your journey with reliable and tested information. Stay spirited and disciplined!
By: FXBonus Team
Post a Comment