The Most Important Lessons I’ve Learned from Funded Futures Trading

As I continue to progress toward mastery as a trader, it sometimes feels like I’ve undergone a machine learning experiment over the last few years. There are so many important lessons I’ve learned from trading and studying the markets, and some of these lessons apply specifically to the world of funded trading accounts.

While there are several known adages to abide by to secure your very own funded futures account, there are some that I personally like and employ specifically because of my own experience. I will share those with you here.

Don’t start an evaluation if you are still stressing during paper trading.

I would rather not start on a negative, but it’s important to understand this first. I believe that when you’re really ready to make money from these programs, passing an evaluation like this will feel easy. If it is nerve-wracking and forces you to contemplate quitting, you have not developed your trading skills enough yet. And what’s worse is, if you do pass, you will find it extremely difficult to get your funded account to the point where you can withdraw some of your profits.

If this is the case, consider practicing more with a demo account and working on the things holding you back. Don’t pour money into evaluation accounts when you aren’t ready, as this will likely just lead to bitterness and giving up on one of the greatest opportunities available today for futures traders.

I’ll assume you’re already past that stage as a trader, so let’s continue.

Use a strategy that makes sense for the account you’re after.

I won’t comment on specific strategies too much, but there are definitely elements of certain strategies that will serve you better than others. The reasons for this are not always obvious.

First, these accounts are specifically designed for day trading. Your trading style needs to be faster-paced than the fastest swing trader. At the same time, most (or all) firms do not look kindly upon any sort of high frequency trading. Thus, your trading style shouldn’t involve aiming for a tick or two repeatedly over hundreds of trades.

So what is the sweet spot? In my experience, it’s between 1 and 10 good quality trades per day. Anything beyond 7-10 trades, assuming you read the market well, would mean:

1. you’re scalping (and stopping early, which can be fine), or
2. you’re trading for a long time each day (this may lead to burnout and lower quality trades toward the end of the session)

You’re free to do either one, but I don’t think it’s necessarily worth the stress. Our brains need to rest, and this is a job that requires extreme discipline and focus to be performing at a high level. Check how well you do on 6 hour days vs. 2 hour days, and see if there’s a good reason to put in more than 20 hours a week.

My own strategy with funded accounts is a bit conservative. I will have more days with 0-1 trades than days with more than 5. I find that I do the best when I finish within 2-3 hours, but I do trade for longer occasionally.

If you are curious about my strategy recommendations, I recommend trend-based trading rather than scalping, and being comfortable with early profit-taking rather than holding positions for a long time. More on that later.

Stick to 1-2 trades per day on longer evaluations.

I decided to write a whole post on this topic, which you can check out here.

Limiting yourself to just 1-2 trades per day will push you toward better trade selection, free up more of your time, and reduce your stress overall. Passing the evaluation only requires you to trade once for a day to count as a trading day, so make that one trade count.

Depending on your own mindset, you may find additional benefits.

Do not trade during the news or the opening bell.

If you’ve already achieved mastery, you know how to trade the open consistently without being caught off guard, and so you can skip this section.

Being unprepared for scheduled news or the market open are a surefire way to burn an evaluation account. Big news releases come at 5:30, 6:45, 7:00, and 11:00 AM (PST), not including some of the less frequent ones (FOMC speakers). Be alert, and check your calendar every morning.

The U.S. stock market open is similar to a scheduled news event, which happens everyday at 6:30 PST. This open often swings most major markets in either direction with force. When you’re trading futures, it doesn’t take long to realize how much movement that early morning volume generates.

For most traders, however, it just looks like pure chaos. What’s even more difficult is that beginners are often attracted to the fast paced moves and bigger profits. Be honest with yourself; if this describes you, this advice will be hard for you to follow.

Sometimes the market runs in a straight line in either direction, making you wish you had just ignored the rule and jumped in. Getting into one of those moves might earn 25% or more of an evaluation’s full profit target in just a few minutes. It’s easy to think of it as easy money.

Unfortunately, until you are an expert, you will not be able to do this consistently enough to justify the risk of ruin. Plus, at some firms, such as at Apex Trader Funding, specifically trading the open or the news in pursuit of a windfall violates the rules of the funded account. So do your best to avoid it, until you’ve put in the work that justifies trading it. If you haven’t, you can easily jeopardize your account in the first few minutes of any trading day, and the cost here is twofold.

It’s not just that you will burn some of your capital by taking a loss at the open. It can be extremely demotivating, especially for beginners, to prepare for the day and start off with a large loss in the first 15 minutes. So when you’re still figuring it out, the easiest thing to do is to skip the open altogether.

If you’re still learning your strategy, use the evaluation account to practice.

When I started with these accounts, I compared my live futures account to evaluation accounts, and quickly realized something. This opportunity was significantly cheaper than any futures trading practice I could get from my own account. While an evaluation might cost just $150 (and often much less due to sales), I could trade for weeks on a single account, even if I had no intention of passing. This allows me several weeks of practice in an environment where mistakes are going to be punished, even if my trading capital was not in danger.

On the other hand, a single bad trade on the e-minis can quickly cost you more than $150. If you take a significant loss on the first day of the month, and don’t have enough margin remaining, all your live market practice stops there.

It’s a no-brainer to me now, so I’m sharing this perspective with you. If you’re still tweaking your strategy, and figuring out your psychology to execute your strategy perfectly, consider doing evaluations with the same mindset I’ve described here. Then, when you’re ready, you’ll not only be a better trader, but you’ll be familiar with the rules and hopefully tailor your strategy to work under the rules imposed on you by whichever company you choose.

Take advantage of the regular sales.

I just mentioned sales above, but this does deserve its own section. Some firms have frequent sales throughout the year, of up to 90% off of the cost of an evaluation. These firms will often charge you an activation fee upon securing funding, which is unavoidable. But when it comes to just trading evaluations, you do not want to pay full price, ever.

This 70% or 90% discount can make a huge difference if you’re someone who’s still struggling to pass on your first try. I try to include every discount at all the firms right here on this site, so check the post under “Funding Programs” on the top menu for a list of these discounts.

If a firm doesn’t offer any discounts at the time you’re looking to try an evaluation, check with some others. They might have a similar program at a significantly lower cost.

Stick to 1 evaluation at a time when you first start.

Having access to infinite accounts and account resets can be tempting, especially if you have a lot of money laying around. But I advise you against this, and I don’t just mean in order to save your capital. You’re free to waste your money however you like, but you will be building poor habits if you treat these accounts as a lottery.

Doing 20 evaluation accounts at once to pass one, withdraw money, and pay off the cost of the accounts should not make you feel proud. It may be a relief to dig yourself out of the hole, but this is a horrible lesson to be learning as a serious trader. Do your best not to reinforce any habits that promote reckless trading or gambling with your accounts. The better money is waiting for you, but you won’t get much of it this way.

Keep a backup laptop or device that can let you log into your evaluation account during an emergency.

I don’t want to break down the rules of these accounts, as they all vary in some way across different companies, and this post is not about the rules. But the main rule to worry about is the one that says you will fail if you hold any positions through the session’s close.

If you find yourself in a situation where you can’t access your account in time to flatten all positions, it’d be great to have a backup ready for it. Thankfully, the most you can lose is the account, but it’s still going to hurt, especially if you were close to finished.

If you’re dealing with a trailing drawdown, take profits early, and often.

You should be very familiar with the trailing drawdown concept before you start an evaluation. If you’re not, read about it here.

This may be controversial, and even I am conflicted about suggesting this to every trader. It’s most likely better for your trading development to trade on an evaluation the exact same way as you plan to trade your funded account.

However, if you are here because your strategy is proven, but you want to pass evaluation accounts faster and more consistently, you should give this tip some serious thought.

When you’re trying to pass an evaluation, one of the worst days will be seeing a big profit turn into a small loss, and forcing your drawdown to shrink as a result.

The best way to deal with this is to prevent it. Rather than aiming for a $1,500 profit on a single move, even if you know the move because it’s a textbook setup in your strategy, take profit at a predefined point. This means entering a trade with a profit target either already set, or set immediately after, somewhere where you know the market will go on the way to its real target.

When I trade, I adapt at different stages during the evaluation. If I have 3 or more days left, and I’m already within $800 of the target, I will take smaller profits ($200-300) and spread it out over the remaining few days. If it’s later in the evaluation and I feel behind, I will aim for $700-$1200.

More to come...