Master Prop Trading: The Successful Prop Trader's Insider Secrets For Consistent Profits and Payouts

Have you ever wondered what separates successful prop traders from the rest? In this post, we’ll delve into the hidden insights gleaned from a massive study by FundedNext, a leading prop firm. Their researchers analyzed data from over 17,000 prop traders, specifically focusing on the top 5% performers – regardless of their trading style (scalping, day trading, swing trading, etc.).

prop traders

The first one is the ratio of maximum losing trades to average winning trades. The maximum loss is the highest amount of loss you had with a single position. This study showed that less than 7% of traders can keep their maximum loss versus average win ratio below 0.5. Underscoring this importance, it’s one of the first lessons in our trading system as we discuss stop loss and money management.

LOSING TRADES

If we look at the five possible outcomes of each trade, the one that we train students to accept in advance is a small loss, defined as a stop-loss. The Trader’s Journal should not show any big losses, as they affect the profitability of the trading system and its profit factor and expectancy. You will see in our daily trade journals published on our website or YouTube that every trade has a well-defined stop loss based on the setup, and you will never see a big loss in our trading records because it damages the expectancy or profit factor of our system.

The second key trait is the Profit Factor, a crucial metric for any trading system. A profitable system should have a factor greater than one, ideally exceeding 1.5 or 2, to account for trading costs. This study compellingly revealed that higher profit factors translate to significantly larger payouts.

To help you assess your own strategy, we offer a free calculator that computes your expectancy and profit factor based on win rate and average win-to-loss ratio.  Our website and YouTube channel feature reports like these, showcasing a profit factor of 3.8 achieved within 15 days on OneUpTrader and a 4.11 profit factor from Apex Trader Funding accounts.

The study emphasizes another key pattern: win duration versus loss duration.  They found a significant increase in payouts as the ratio between winning and losing trade duration increased. Interestingly, the top 7% of traders held their winning trades more than double the length of their losing trades.

WIN DURATION
profit factor

This finding aligns with our emphasis on Setup T (trend-following). We recommend this approach for beginners because trends can lead to longer-lasting winning trades and ultimately, a better win-to-loss ratio.

The fourth pattern highlights the importance of quality over quantity. Successful traders prioritize profit over excitement, and excessive trading within a short period can hinder profitability.  The table you’ll see next demonstrates this concept, with traders executing 3-5 trades per cycle achieving the highest average payouts (around 34%).

QUALITY OVER QUANTITY

Our Trendline Trading system employs Price Action Algo Trading (PAAT) principles. We categorize trade opportunities based on the alignment of three factors: macro, structural, and individual trading charts.  While there are 27 possibilities, only six are considered medium to very low risk, and just two are suitable for novice traders. By prioritizing these high-probability trades and filtering out lower-quality ones, you can significantly increase your chances of success.

The fifth key factor is following the trend. Aligning your trades with the higher timeframe bias increases your chances of success. The study revealed that top performers who followed this principle achieved significantly higher payouts. This is the core concept behind our Setup T strategy. By ensuring long trades align with the higher timeframe bias, we create a low-risk scenario for capturing trends.

FOLLOW THE TREND
PAIRS TO TRADE

The sixth factor highlights the importance of limiting the number of trading instruments. Successful prop traders focus on mastering specific instruments. The study found that traders who focused on just one instrument achieved significantly higher profitability. In fact, 43% of payouts went to those who excelled at trading a single instrument.

We guide our students through selecting a single instrument that aligns with their risk tolerance, instrument’s point value basis, and the instrument’s average trading range during trading times suitable for their lifestyle.

PROFITABLE TRADES

The study revealed a surprising seventh pattern: profitable traders were more likely to trade only on profitable days.  Compared to those who traded every day, traders who focused their activity on specific days achieved 45% higher payouts. This translates to a 13-fold increase in the likelihood of profitable trades.

We incorporate this concept into our training by teaching students to utilize a pre-trading session checklist. This checklist helps them identify whether current market conditions are suitable for trading, promoting selective participation to maximize their chances of success.

The eighth pattern is the win percentage. The study emphasizes the importance of a win rate, with traders boasting an 80-90% win rate achieving significantly higher payouts. In fact, over two-thirds (66%) of payouts went to traders with win rates exceeding 80%.

This finding aligns with our focus on Setup T for beginner traders. Setup T offers a high win rate, typically ranging from 70% to 90%. A strong win rate is instrumental in managing drawdowns and ultimately, in succeeding in prop firm challenges.

The final key pattern identified by the study is the importance of a stress-free trading environment. Interestingly, traders who effectively managed their daily losing trades achieved significantly higher payouts. The study found that traders who limited their daily losing trades to less than four captured a substantial 72% of the total payouts.

This reinforces the importance of managing consecutive losses and focusing on selecting high-quality trades. By implementing these strategies, you can cultivate a smoother equity curve and minimize the stress associated with trading.

Beyond the Study: Practical Application for Prop Trader Success

The FundedNext study offers a valuable data-driven perspective on successful prop trading. However, our approach goes beyond theory. We’ve had the privilege of guiding numerous instructors and students through prop firm challenges, while also helping them achieve consistent growth in their own trading accounts. This real-world success validates the effectiveness of the principles we advocate.
It’s gratifying to see that the findings published by FundedNext align with the core principles we’ve discovered over two decades of trading and training experience. Our entire training system, built upon the foundation of Setup T, equips novice traders with the tools they need to achieve the nine key traits identified in the study. This comprehensive approach empowers them to not only succeed in prop firm challenges but also navigate the realities of the prop trading landscape.

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