One of the coolest developments in the trading world for people who want a lot of trading capital without placing their own at risk is the rise of prop trading firms. The most common way to get funded right now is a two-step funded account challenge, and if you pass the two levels required, you get funded by a prop firm.

If you’re looking at the two-step challenge for the first time, you might think it will be incredibly difficult. But once you learn the appropriate strategy, psychology, and risk management, you significantly increase your odds of passing a funded account challenge. It’s less about making profit and more about being consistent and managing your risk well.

Understand the rules before trading

The first thing to do before starting a two-step funded account challenge is to understand all the rules the prop firm provides. Each prop firm has various rules that might include profit targets, maximum daily drawdown, maximum overall drawdown, number of days in the evaluation, whether you can trade during major news, etc. 

Most people fail funded challenges just by violating the rules. When you’re looking at the two-step challenge as a beginner, it’s critical to thoroughly read over the requirements of the challenge before making your first trade.

Focus on risk management first

It’s a very common mistake to try to chase the profit target. Actually, two-step funded account challenges are testing your risk management, not necessarily how fast you can make profit. Traders who consistently win know how to manage their risk and protect their capital at all times.

The keys to good risk management are:

• Risking only 1-2% of the account per trade.
• Always using stop losses.
• Not taking excessively large positions.
• Limiting your daily trades.

The trader taking on a two-step funded account challenge knows how important it is to not blow up the account, as that will result in failure of the challenge.

Create a well-defined trading plan

Trading plans help you remove emotional trades and stay consistent.A good trading plan includes conditions under which you enter a trade, conditions under which you exit a trade, your risk-reward ratio, your maximum daily loss limits, your maximum number of trades for the day, etc. 

The two-step funded account challenge is a great environment for you to develop a strong trading plan, and if you’re starting day trading for beginners, this is crucial to get you to the next step. If you’re emotional, then a trading plan helps you to not be impulsive, and it significantly reduces those emotions.

Keep strategies simple

Many beginners think that a very complex trading strategy will be needed to be successful at the funded challenge, but that simply isn’t true. A basic, solid, and well-defined strategy will help you succeed as much as, if not more, than a complicated system.

Popular basic strategies for beginners:

• Trend following
• Support & resistance trading
• Moving average crossovers
• Breakout trading

It’s not about finding a “perfect” system, but one you can stick to that consistently works. When going for the two-step funded account, you are more rewarded for consistency than for massive big trades.

Don’t overtrade

Overtrading is also one of the main reasons that many traders will not pass the funded challenges. Some beginners simply take too many trades out of the need to make up lost capital, out of fear of missing out on an opportunity, or because they feel pressured to reach the target within a specific amount of time. This is just a recipe for blowing up your funded account quickly. 

Patience is an extremely valuable trait, and as a beginner, one of the best skills you can develop is being able to sit on your hands and wait for a good opportunity to present itself.

Manage your emotions

The trading psychology in funded trading is very important. The emotions that often cause problems are: fear, greed and frustration. All three will likely cause you to break trading rules. These three emotions can force you to move your stop loss, enter trades impulsively, increase your position size after a loss or sell at a loss. Being emotionless is what profitable traders often achieve. 

A two-step funded account is perfect for helping traders develop their psychological strength, because every emotional mistake means instant failure.

Focus on the risk-to-reward ratio

The risk to reward ratio is vital for ensuring profitability when your win rate isn’t 100%. For instance, risking $20 per trade in order to make $60 represents a 1:3 risk to reward ratio. This means that your profitable trades will generally more than make up for your losses, making you profitable long term, and reducing emotions. If you’re trading as a beginner on the two-step funded challenge, then ensuring that every trade has a good risk-to-reward ratio should be paramount.

Practice on the demo account first

Beginners in particular should practice using the demo account before going for the real challenge. It helps the trader to understand how to place trades, to feel the market, and gain confidence on the trading strategies they use. The only downside to the demo account is that you cannot replicate the emotions that you would get while trading with real money. But despite that, many two-step funded traders have spent months on the demo before jumping to the actual evaluation.

Keep a trading journal

Keeping a trading journal is critical for long term improvement as a trader. In the journal you want to record where you entered a trade, where you exited a trade, the risk used on the trade, what was the reasoning behind placing that trade and how you were feeling before, during and after the trade. This helps you to identify any errors and mistakes, and learn how to not repeat them again. A journal is by far one of the most useful tools for beginners.

Avoid trading on high volatility

Trading high volatility can be detrimental. Major news like the announcement of interest rates, the release of the non-farm payroll report, inflation data, or any geopolitical issue are all events that can cause dramatic shifts in the market. The beginners who fail the two-step funded challenges lose their accounts mostly by not avoiding trading when major news comes out. It is also good to learn what is the risk you take when trading during a time of high volatility.

Be patient and persistent

One of the most crucial factors to passing a two-step funded account challenge is patience. Many beginners fail because they want to finish the challenge too fast and they force trades to hit profit targets, which causes them to ignore risk management and abandon strategy. Prop firms typically want traders who are consistent and show that they can make profit long term. As a beginner day trader, slow consistent progress will usually yield better long term rewards than an aggressive trading approach.

Final thoughts 

In conclusion, to pass a two-step funded account challenge successfully it requires patience, strong risk management and self-discipline more than any sort of aggressive profit chase. Those that protect capital as a priority, adhere to the rules and manage their psychology consistently will surely increase their odds of becoming funded. Beginners learning day trading can benefit greatly from the experience a funded account challenge gives by testing them in professional trading environments. 

Simply By implementing proper risk management, avoiding overtrading, using basic strategies and controlling emotions will ensure that the beginner can gradually achieve the consistency necessary to pass evaluation phases with consistency. While any trading challenge is not easy, those who use them as professional businesses rather than as shortcuts to make quick profit typically succeed more. Consistency in trading requires a patient and self-disciplined mindset.