For many budding prop firm traders, passing the FTMO Challenge is a highly desirable rite of passage. However, it’s also really difficult – most people fail it. Even those who have passed it and gone on to have a full account may still have one or more failed challenges under the belt. Plus, there’s also the fact that passing the FTMO challenge doesn’t mean you’ve got the account for good. Break the rules, and you’ll have to start all over again – and cough up the fee once more. In this article, we’ll lay out some ideas that you could integrate into your FTMO strategy, and some possible tips to pass the FTMO challenge.
FTMO Strategy
Patience and consistency
Probably the most testing element of the FTMO Evaluation, and the one which concerns traders most of all, is the pressure of time. In the first phase, you only have 30 calendar days to make 10% of the original account balance. When you factor in the weekends, you basically only have 20 days to hit the target. That’s a pretty tall order by any measure.
Anyone with a decent understanding of risk management will quickly recognize the possible trap here, of letting the pressure of time get to them, and taking on too much risk in order to meet the profit target quickly. This can easily result in a violation of either of the maximum loss limits, which fails the challenge.
With this in mind, consider the importance of pacing yourself. The structure of the challenge shows us what FTMO expects: patient and consistent traders. Patient, because taking on too much risk is likely to breach the rules on losses. And consistent, because you must place at least one trade, every day, for 10 days. Bearing in mind what we just mentioned about the weekends, that means you must trade for a minimum of 50% of the time you can actually trade. As we said, patience and consistency.
The Free Repeat and Extension
While the rules on maximum losses are cut and shut, there’s actually quite a bit of flexibility in terms of the time constraints.
Firstly, you should never forget the fact that you’re entitled to a free repeat if you come to the end of the Challenge with the account in profit and no violations of the other trading objectives. If you don’t quite make the profit target, it’s surely smarter to take advantage of the Free Retake, rather than taking on too much risk with one big trade in the hope of hitting it big, breaching the loss limit, and then forfeiting your fee.
What’s also really good to remember is the fact that, if your account is in good standing and you’ve made more than 5%, you’ll be eligible for an extension of 14 calendar days. So looking at it logically, you actually have 44 calendar days to make 10% overall. Minus Saturdays and Sundays to leave 30 trading days, that’s just over a 0.33% necessary gain per trading day, on average.
When you break it down like that, that’s a very modest gain indeed. The tricky part, of course, is having the patience to ride it out and be satisfied with smaller gains over a longer period of time, knowing the larger gain they can potentially lead to.
Start small
One FTMO Strategy we really like is to use the rules on multiple accounts to your advantage. This strategy comes from Paladin Bhutia, a 1 million funded prop firm trader. You can follow him on Twitter @thelifeofpaladin.
While the initial maximum capital allocation is $400,000 USD, there is no limit as to how many FTMO accounts you can have. For example, you could have four $100,000 FTMO accounts, or eight $50,000 accounts. And of course, the objectives are the same. Make ten percent in a month, and don’t lose more than 5% in a day or 10% overall.
Once you’ve tested your strategy for a few months (hopefully on the FTMO free trial), don’t start your evaluation with the $200k Challenge.
Instead, start off with one of the smaller challenges, like the $10,000 or $25,000 one.
And then, once you’ve passed it, you can use the profits to pay for bigger challenges, like the 100k or 200k.
If this works, you’ll effectively risk just €155 in order to get your hands on six figures of prop firm funding.
And if you fail the evaluation, you will still have gained real, valuable experience of a prop firm challenge. And it’ll have cost you €155, not €1080.
Trade small at first
Good risk management practice generally says that you shouldn’t risk more than 1-2% of your account per trade.
However, in terms of the FTMO Challenge, when you bear in mind that you can’t ever lose more than 5% of the starting balance in a day, 2% is really quite high. Risking that amount is actually risking 40% of what you can afford to lose in a day.
With this in mind, consider the importance of trading small at first. The good thing about small early wins, of course, is that they’re psychologically much better than the stress of bringing the account into a loss at the very start and having to dig yourself out of a hole. Here’s Paladin Bhutia’s FTMO strategy for passing the challenge:
- Risk just 0.5% per trade until you have increased the original account balance by 2%.
- Once you’ve hit that 2% gain, your next two trades should risk 1%. If they both fail, you’ll go back to the beginning and risk 0.5% per trade.
- Keep risking 1% until the final week of your Challenge.
FTMO Strategy for the final week:
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- You can risk a bulk of your profits, e.g. 2 – 3% per trade. You will either pass the Challenge or keep your account in the green to secure the free repeat.
If you are 1-5% in profit:
- Under no circumstances allow your account to drop below the original balance. Risk 90% of your profit in order to get the extension. If you don’t get it, you’ll get the free repeat (which is what would happen anyway with less than 5% profit).
Micro vs. Macro events
Here’s a great tip from Kieran from TraderSeed.io. Kieran is an FTMO trader himself and has the withdrawals to prove it. He reminds traders to think in the long-term as well as in the short-term. For example, think about current and upcoming changes in the world. A key world event, such as high-impact economic or political news, or a conflict, could deliver the price change you need to hit the profit target in a small number of trades.
Check out Kieran’s ideas for passing in the video below:
FTMO Strategy – Asymmetric Compounding
In the video below, Adam Wenig from Blue Edge Crypto discusses a fascinating FTMO strategy. You could theoretically pass the Challenge in as few as two trades.
The key to the strategy is asymmetric compounding and trades with a 1% risk and a 1:3 risk-to-reward ratio so that you gain 3 dollars for every 1 dollar your risk. The two winning trades must be successive.
- First trade: 1% risk, with a 1:3 risk-to-reward ratio.
- Second trade: risk another 1% of your original account balance, plus the profit from the winning trade, with the same 1:3 RR. This sum is equivalent to risking 4% of the original account balance.
- If this second trade is successful, it will deliver a 12% gain of the original account balance.
For example, on a $100,000 account.
- The first successful trade, risking $1,000, brings in $3,000 profit. The account now stands at $103,000.
- The second trade risks another $1,000 (1% of the original account balance) plus the profit of the previous trade. So $4,000 in total.
- The second $4,000 trade, on a 1:3 RR, is successful and brings $12,000.
- $12,000 is 12% of the original account balance. The profit target has been met. All that’s required now is to consider the other trading objectives: the obvious one will be minimum trading days.
The good thing about this strategy is that a 1:3 risk-to-reward ratio is that you can be wrong three times in a row, but you’ll break even so long as your fourth trade is successful.
Take a look at Adam’s video below for more details on this strategy: