How to win a trading challenge?

How to win a trading challenge?

Written by

Justin Cox

Written on

Jan, 2024

Updated on

Jan, 2024

Table of content

Winning a trading challenge is a challenging task, as a multitude of traders are competing for the first place. Despite its difficulty, it is achievable to become a successful trader and win a trading competition, be it in Forex or any other financial market. Below, we will discuss the necessary steps and provide tips on how to win a trading challenge in fierce competition.

What is a Trading Challenge?

Numerous Forex brokers and Forex prop firms offer scheduled trading challenges with numerous prizes. Forex broker challenges offer traders the unique possibility to win cash prizes and gain starting capital for FOREX trading. Both brokers and prop firms use challenges to attract clients to their platforms and test their services. Brokers sometimes use challenges to gain starting attention from the trading community and detect any inefficiencies with their trading platforms and services in the process. Prop firms also use trading competitions to attract clients and detect pro traders who may be reliable enough to give trading capital. This is the quickest process for gaining brand recognition and building a successful trader base. For traders, participating in trading challenges gives them unique opportunities not only to become profitable and show their performance but also to gain crucial experience in practical trading. On top of that, winner traders can also enjoy various prizes, including cash and funded accounts.

Pre-Challenge Preparation

Before signing up for the trading challenge, there are key steps for successful preparation. Starting to trade without a proper strategy that was tested guarantees frustration and losses. The most important thing to do is develop a well-thought-out trading strategy that addresses all the essential aspects of profitable trading. The first step is to research and select the right Forex broker or prop firm and understand the rules and constraints of the challenge. It is an absolute must to read all the rules and follow them, not to get disqualified from the challenge. This is especially the case for prop firm trading challenges, as they have consistency rules, risk limits, and maximum lot sizes that are easy to overlook and get disqualified even when in profits. If necessary, write down all critical rules to take into account during the strategy development phase. After carefully reading the rules of competition and searching for hidden rules, it is time to develop a trading strategy or to tweak your existing strategy to adjust to the requirements of the challenge. Ensure your strategy aligns with the daily and maximum drawdown limits of the prop firm to achieve profitable performance. If you are a novice trader who wants to participate in a challenge, then there are a few concepts you should familiarize yourself with. The three cornerstones of financial trading are technical analysis, fundamental analysis, and strong risk management skills. Without these three concepts, it’s not possible to become profitable and win trading challenges.

Mastering Technical Analysis

Developing a trading strategy includes having a mastery of technical analysis and knowing how to use tools. This also encompasses the practical knowledge of trading platforms used in competition. Often, the challenge includes the trading platform that is the main platform for executing trades on the challenge account. Ensure you are familiar with the platform and its arsenal of necessary tools, including how to draw trend lines and apply technical indicators on the chart. With this basic knowledge, the next phase is to define which technical indicators to use for the technical analysis of financial markets. Moving averages, various oscillators, and Fibonacci Retracement tools can offer greater aid in this process.

Fundamental Analysis for Financial Trading

Another key aspect of trading that is frequently overlooked and improperly understood by starting traders is fundamental analysis. There is no successful trader who does not use an economic calendar to monitor important macroeconomic news and indicators. Fundamental analysis, in essence, is analyzing economic data and using this information in the decision-making process during trading. Central bank interest rates, employment rates, and many more are known to shake financial markets consistently, and overlooking them can cost dear to traders. Include the step for monitoring the economic calendar in your trading strategy to ensure the trader is not caught off guard by scheduled macroeconomic indicators. Many prop firms restrict traders from trading during news release hours. Breaking the rules will result in account termination when trading on the funded account. Therefore, always knowing when major news is released can be critical in prop trading.

Risk Management Strategies

Trading without a well-defined risk management strategy guarantees the trader loses money in the long term. Many prop firms have strict risk management rules for their challenges, ensuring their capital is in safe hands. Risk management includes defining how much to risk on each trading position when to close the trades, where to set stop loss, and many more. Properly assigning the capital to each trading position may be a difference between losers and winners. Prop firms also have daily loss limits and maximum drawdown limits, which must be followed tacitly without breaching.

Developing a Winning Trading Strategy

Now, this is the most crucial part of winning any trading competition, be it Forex prop trading firms or Forex brokers. The approach is slightly different for each one of them. Here is why: prop firms have strict risk limit rules, allowing traders to operate within tight risk parameters. Forex brokers, on the other hand, give traders more freedom to manage their risks and show final performance. Here are steps for developing a trading strategy specifically aimed at trading challenges for prop firms and Forex brokers:

Step 1: Define your trading goals

Write down all the critical requirements of the prop trading firm and Forex broker too in case the broker also has some requirements and restrictions. Ensure to write down the daily loss limit and absolute drawdown. Find out the maximum allowed lot size that can be opened at any time and if you are allowed to trade during the news and overnights. These are super important when competing in the prior firm challenges to make profits, to avoid being disqualified. Select the trading asset you are going to trade to achieve your trading goals and adhere to the rules.

Stay updated on economic indicators, news, and events that can impact your chosen market.

Step 2: Choose a trading style and conduct market research

Decide your trading style that is suited to your psychological and emotional needs. Some traders can not wait for hours for their trade to be completed and prefer scalping, while others can not make an informed decision in a short time. Ensure the trading style suits your person and is comfortable with your emotional intelligence. One way to select a proper trading style is to consider the time you can dedicate to trading and your comfort with risk. Additionally, check if your FX/prop firm allows EAs, since they can become a crucial part of your trading style.

Analyze different financial markets such as stocks, Forex, and cryptos and identify the assets that suit your trading style and method.

Step 3: Technical analysis

Technical analysis is the bread and butter of financial trading, and winning in trading competitions is impossible without some kind of trading setup. The majority of trading setups for day trading come from technical analysis of financial instruments, which involves applying technical tools and indicators to price charts.

Learn how to use technical analysis tools to identify trends, support/resistance levels, and potential entry/exit points in the market. Try to understand and utilize technical indicators including moving averages, RSI, MACD, and many more to enhance your decision-making process.

Step 4: Fundamental analysis and economic calendar

Fundamental analysis, unlike technical, involves researching macroeconomic factors and identifying the potential impact on financial instruments you are going to trade. Depending on your trading asset, different macroeconomic factors will have different impacts. When trading Forex, interest rates, and employment rates, especially the Nonfarm Payroll, will have a tremendous effect on the markets. Major geopolitical news such as wars and pandemics also shake financial markets and can render any technical analysis useless.

The economic calendar is a way to monitor all the important news and await its release beforehand. With the use of the economic calendar, the trader ensures they have a comprehensive knowledge of fundamentals while conducting a technical analysis. Combining fundamentals with technical analysis will enhance trading performance.

Step 5: Develop a trading plan/strategy

All the previous steps are in vain without a properly written set of rules and conditions for opening and closing trading positions. This set of rules and guidelines that a trader must follow is also called a trading strategy. You need to know when to enter and exit trading positions based on your analysis setups.

Step 6: Risk management

While risk management is part of all trading strategies, it deserves its own step. Risk management enables traders to stay in the game in the long term. The goal of most modern companies and businesses is to stay in the market in the long term, and traders must adopt this strategy too. Always use stop loss and take profit orders to ensure all risks are controlled, and trading positions are always closing after certain losses.

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