Speaker A
All right, here's a video on prop firm specific risk management. So, I am just going to talk about Topstep for now. It is just the basic.
Learn prop firm specific risk management strategies focused on Topstep evaluation and funded accounts to maximize pass rates and profits.
Key Takeaways
- Passing prop firm evaluations quickly reduces trailing drawdown and increases success probability.
- Large initial wins on funded accounts provide a bigger drawdown buffer and more payout opportunities.
- Consistent small daily wins help maintain account balance above drawdown limits and secure payouts.
- Multiple independent paths exist to pass or fail an evaluation, emphasizing flexibility in strategy.
- Risk management tailored to prop firm rules and personal trading strategy is essential for success.
What the video covers
- Introduction to prop firm specific risk management using Topstep as the example.
- Explanation of evaluation metrics including starting balance, drawdown limits, and passing criteria.
- Importance of maximizing the chance of passing the evaluation before hitting drawdown limits.
- Discussion on the randomness of market patterns and multiple paths to pass or fail an evaluation.
- Strategy to minimize trailing drawdown impact by passing evaluations as quickly as possible.
- Approach to funded accounts by targeting large initial wins to increase drawdown buffer.
- Comparison of risk-reward scenarios for different profit targets on the first funded day.
- Use of consistent small winning days to guarantee payouts and maintain balance above drawdown limits.
- Cyclical process of taking payouts and reinvesting into new evaluations for continuous growth.
- Encouragement to ask questions in group coaching calls for personalized risk management advice.
Chapters
- 00:00Introduction to Prop Firm Risk Management and Topstep Evaluation
- 00:41Understanding Account Equity and Evaluation Metrics
- 01:08Maximizing Chance to Pass Evaluation Before Drawdown
- 01:35Market Pattern Randomness and Multiple Paths to Pass
- 01:59Avoiding Trailing Drawdown and Passing Quickly
- 03:08Funded Account Strategy: Large Initial Wins
- 04:44Risk-Reward Comparison and Expected Value Analysis
- 05:44Consistent Small Winning Days to Guarantee Payouts
- 06:10Probability and Drawdown Buffer Advantages
- 07:49Summary and Group Coaching Invitation
Full Transcript — Download SRT & Markdown
Speaker A
And the first thing I'm going to explain is the evaluation. Now, we can pretty much imagine the evaluation as minus 50, minus 50 points, plus 75 points.
Speaker A
The reason why I'm sort of showing you this in this manner is to demonstrate an account's equity and how that changes over time.
Speaker A
So, this in the middle right here would be $50,000. Obviously, you're starting on a 50k eval, so this would be 50k.
Speaker A
This down here, 48k. This is for the eval. I'll get to the funded in a second.
Speaker A
So, obviously to pass, you have to achieve this before you achieve this. And they have rules like 50% consistency. Some firms have winning day rules, lower consistency, all that stuff, but Topstep is just 50%.
Speaker A
So, the way we do prop firm specific risk is we have to maximize our chance of hitting this before hitting this.
Speaker A
Which obviously seems quite simple, right? Kind of. First of all, we optimize around the rules, and then second of all, we have to optimize around the strategy that I trade, the one that I'm teaching you.
Speaker A
So, this is how we pass the eval. Now, just looking at the chart. Just look at the chart for a second.
Speaker A
Just look at the way the candles are forming, and the pattern seems like it's quite random, right? Like when I'm zoomed this far out, obviously it's just like an uptrend, but this is like quite random.
Speaker A
Now, what if I drag this prop firm challenge to a random spot like that? Okay, I missed it, but a random spot like that, right?
Speaker A
And then we'll see, we'll zoom in. It entered your prop firm challenge here, and it passed, which is great.
Speaker A
And then I'll do it again, do it again. Obviously, we're not a bullish market, so you're probably going to pass more than you fail. But, say it started here.
Speaker A
You would come all the way down, almost lose, but then you get up, eventually get up and win.
Speaker A
If you did it, if you bought here, then you would lose. So, this is how we are sort of looking at the prop firm challenge. You need to look at it in terms of account equity like that if
Speaker A
that makes sense. Not in terms of trades because you have so many different independent paths that you could take to pass your eval, right?
Speaker A
Like you could have this path, you have this path, you could even have this path where you win like two trades in a row, something like that. You go all the way down here and then come all the way back
Speaker A
up. Like there's so many different paths, like literally infinite different paths that you could take to pass an eval or fail an eval. So, obviously, prop firm specific risk, we're going to maximize the expected chance of passing.
Speaker A
Now, first way to do that is to avoid the trailing drawdown as much as possible. So, if you make a trade for like 200 bucks, the trailing drawdown will trail, and now you have $2,000 of max loss from here to here
Speaker A
instead of 2,200. If you had that 2,200 and you kept trading, kept trading, and you lost all of what you kept and you lost all of that in the same day or in the same trade, then you would still have $2,000 worth of
Speaker A
drawdown. Nothing happened. If you did this, went to the next day, did another trade, went to the next day, did another trade, the drawdown would keep on trailing.
Speaker A
And so, after three wins, you might still only have $2,000 worth of drawdown. So, what we have to do is pass the evaluation as quickly as possible. So, the less amount of times the drawdown trails up, the better that is for you
Speaker A
because you have less total overall drawdown. If that makes sense. Like if you do it in two trades, there's only one time that the value that the drawdown moves up. If you're passing in two trades every time,
Speaker A
which is what I try to do because it's 50% consistency. So, with our prop firm risk, we are passing evaluations as quickly as possible, so the trailing drawdown has the smallest effect possible on our pass rate.
Speaker A
So, I hope that makes sense. And then, same thing for the funded account, literally. We are trying to win usually 3 to 4,000 dollars on the first day on our 50K in just one trade.
Speaker A
That way, this thing will only trail once. If you make 2,000 dollars, that's good, but the drawdown's going to trail up here, and you essentially risk 2,000 dollars in drawdown to have the drawdown trail up, and now
Speaker A
you still only have 2,000 dollars in drawdown. So, you risk an entire funded account to get pretty much no new drawdown, but you are 2,000 dollars in profit.
Speaker A
If you were to compare that and say you go for 3,000, now you're 3,000 dollars in profit, and you have 3,000 dollars worth of drawdown if you win 3,000 dollars on your first day. So, if it would be if it's like
Speaker A
the risk to reward of going for 2K and the risk to reward of going for 3K, it's the exact same expected value, assuming your strategy is like a normal strategy, right? Like a break-even win rate. Assuming a
Speaker A
break-even win rate, 50% win rate to win 2K, that's a break-even chance to hit 2K.
Speaker A
It's the same expected value as a 40% chance to win 3,000 dollars if you're risking 2K.
Speaker A
That's just like the break-even win rate. We can do way better than that, but at worst, it's the same expected value to go for 2K as to go for 3K. So, why would we go for 3K? Well, because then
Speaker A
you have 3,000 dollars worth of drawdown to work with. And with 3,000 dollars worth of drawdown to work with, you can first of all, you can take more payouts, and second of all, if you ever have an accident
Speaker A
where you're going for a bunch of winning days, well, actually, you wouldn't have that. I mean, if you're following the risk, we're just going for plus or minus $200 winning days to guarantee the payout. So, essentially,
Speaker A
it'll look like a step, a staircase. Like, you can never lose more than $200 in a day if you're following the risk dashboard.
Speaker A
So, it could literally be up or down. But, like, plus or minus 200 every day.
Speaker A
And on average, you're going to stay at 53k. But, if you have the same expected value to go for 53 as 52, but you can literally have $1,000 extra in drawdown, that's way more profitable.
Speaker A
So, that's why we go for a large winning day on our first day on the funded accounts. And then, the reason why we do the small winning days, plus or minus 200, 150, 250, whatever the site is asking for,
Speaker A
is we're guaranteed a payout. So, if you're at a 53k balance, your trailing drawdown comes up and locks at 50k. If you're doing plus or minus 200, just to go for winning days, your chance of coming all the way down
Speaker A
to 50 is literally zero. Like, I don't even know what the math for that would be. You can ask ChatGPT, but just because you're doing plus or minus 200, you would have to lose 15 times more than you win. So, you have to lose
Speaker A
15 times more than you win before you get four wins because you already have a big win to get here. So, you'd have to go 19 losses to four wins of a 50/50 trade.
Speaker A
This is a break-even win rate, by the way, for plus or minus 200. And I don't think it's, I don't know.
Speaker A
What even would it be? The odds of this have to be so incredibly small. Maybe like 0.0001.
Speaker A
So, that's why we do the winning days, just to guarantee ourselves a payout, then take out half of the balance, and then do the same thing.
Speaker A
Once you take the first payout, all the payout gets reinvested into more evals. And then you just repeat the whole cycle. So, it's a very cyclical effect and I hope all of that made sense as to why
Speaker A
or how we do prop firm specific risk. If you have any questions, I usually bring it up in the group, in our group coaching calls in the Discord just because it's easier for me to explain it like your personal situation, like your
Speaker A
current situation rather than obviously on the chart here. So, just give me a shout there.
Topics:prop firm risk managementTopstep evaluationfunded account strategytrailing drawdowntrading mentorshipprop firm challengerisk optimizationtrading strategyaccount equity managementWso Trading Courses
