Session 24

Summary

The creator explains a method for passing a two-phase $10K prop firm challenge using a hedged trading approach. He walks through selecting a Euro/Pound swing trade, calculating risk and profit targets, and structuring positions so the gains from one broker offset losses from the other. By risking 4% to pursue an 8% target, and by mirroring stop-loss and take-profit levels across accounts, the strategy aims to navigate phase requirements while managing downside. The video emphasizes careful position sizing, discounting challenge fees, and the potential profitability of repeating the process even if one phase fails.

Takeaways

• 😀 The two-phase challenge involves making a profit on a prop trading account with a $10,000 balance, and this example is based on a $72-$77 cost for entry.
• 😀 The goal for phase one is to make an 8% return with a 5% risk limit per day, which requires precise trade selection and careful money management.
• 😀 The challenge uses the Euro-Pound pair, where there is clear resistance and support, making it suitable for a swing trade.
• 😀 The trader plans to risk 4% to aim for an 8% return, targeting a $800 profit on the $10,000 account balance.
• 😀 To calculate the correct lot size, the trader uses a position size calculator to ensure they can reach the desired $800 profit while managing risk effectively.
• 😀 The trader aims for a 2:1 reward-to-risk ratio, adjusting the lot size to make the 8% profit with an appropriate stop-loss and take-profit setup.
• 😀 The importance of factoring in transaction fees is mentioned, ensuring that after the trade execution, the trader still meets their profit target of $800.
• 😀 In this example, the trader hedges their position by simultaneously placing a sell order with a stop-loss and take-profit set on both sides to reduce risk.
• 😀 The trader sets stop-loss and take-profit points on both their prop firm account and their hedge broker, ensuring both are linked and monitored.
• 😀 The two-phase challenge can end with different outcomes: passing both phases, passing phase one and failing phase two, or failing phase one entirely. The goal is to keep trying until funded and profitable.
• 😀 If successful, the trader will be funded with $10,000, which could lead to much higher earnings compared to the initial cost of entering the challenge.

Q & A

What is the goal of the two-phase challenge on Aquafunded?

The goal of the two-phase challenge on Aquafunded is to make an 8% return on Phase 1 with a maximum daily risk of 5%, and then move to Phase 2. If you pass both phases, you can become a funded trader.

Why is the trader opting to risk only 4% instead of the allowed 5%?

The trader opts to risk 4% instead of 5% to maintain a more conservative approach and maximize profitability. A lower risk allows the trader to better manage losses and stay within the challenge's requirements.

What currency pair is being traded in this example, and why was it chosen?

The currency pair being traded is EUR/GBP. It was chosen because of clear resistance and support levels, making it ideal for a swing trade. Additionally, the correlation between the Euro and the British Pound is considered favorable at the moment.

How does the trader calculate the position size to achieve the target profit?

The trader uses an order calculator to determine the position size. They aim for a profit of $800 on a $10,000 account by adjusting the position size to a 2:1 risk/reward ratio, factoring in trading fees to refine the trade size.

What does the trader mean by 'hedging' the position?

Hedging refers to placing both long and short orders simultaneously to protect against potential losses. The trader sets correlated stop-loss and take-profit levels for both orders, ensuring that one order compensates for the other if the market moves unfavorably.

How does the trader handle risk management during the challenge?

The trader ensures proper risk management by only risking 4% per trade, and carefully calculating position sizes to align with the challenge's 5% daily risk limit. Additionally, they set stop-losses and take-profits in a way that limits potential losses and maximizes the chances of passing the challenge.

What happens if the trader fails Phase 1 of the challenge?

If the trader fails Phase 1, they can retry the challenge as many times as needed. However, they will not get a refund for the challenge cost, though they can continue testing different strategies until they pass Phase 1.

What is the significance of using a 2:1 risk/reward ratio in this challenge?

The 2:1 risk/reward ratio ensures that the trader aims for double the profit of the risk taken. This strategy increases the chances of overall profitability, as the potential gain outweighs the potential loss if the trade is successful.

How does the trader plan to use the profits from this challenge in the long term?

The trader plans to use the profits from passing the challenge to fund a $10,000 account. Once funded, they expect to make more money than the initial cost of the challenge by consistently following profitable trading strategies.

Why is it important to track both stop-loss and take-profit levels in both the hedge and prop firm accounts?

Tracking both stop-loss and take-profit levels in both accounts ensures that if one side hits a stop-loss, the other side reaches its take-profit, maintaining a balanced risk/reward structure. This coordination helps manage risk while maximizing the potential for profit during the challenge.