Mastering the Art: How to Become a Successful Crypto Prop Trader
10 minutes read
17. 2. 2024
Working towards becoming a successful crypto prop trader requires leveraging skills learned in traditional trading while also acquiring new ones specific to the crypto market. Let’s delve into what that may entail below.
Crypto prop trading platforms have their own clearly defined risk-management rules and prohibited practices; follow them or you’ll regret it
Successful prop traders should follow a pre-planned strategy rather than let emotion dictate their trades
Many top crypto prop traders keep trading journals to create an invaluable data trove, the better to design sound strategies
How difficult is it to become a successful prop trader at crypto prop trading firms? Well, if it were easy, everyone would do it. We would likely see a wide range of adolescent prop traders to elderly adults. However, that’s not the case.
Becoming a successful prop trader requires a competitive edge, clear trading goals, profit targets, and a whole set of other factors. Nevertheless, following some clear principles will help you master the art.
In this article, we’ll outline the best principles to keep in mind to achieve success at crypto prop trading firms.
Crypto prop trading firms give experienced traders capital to trade on their behalf, enabling traders to retain the bulk of the gains they generate. This model allows proven traders to leverage their skills with greater starting capital and, in turn, generate higher returns if their strategies prove successful.
But the difference between success and failure in cryptocurrency trading is night and day. The best traders must balance operational discipline with fine-tuned strategies, while also incorporating the latest news to anticipate and capitalize on sudden market movements.
Let’s take a look at some solid principles a successful crypto prop trader would adhere to to make their proprietary trading journey a profitable one.
Any crypto prop trading firm will have its own clearly defined risk management rules and prohibited practices list. As someone in proprietary trading, adhering to these requirements is extremely important. The best prop trading firms ensure all of their traders effectively follow these rules.
While many are familiar with the evaluation process crypto prop trading firms use to test trading skills and trading capacity, there are other rules and frameworks vital to any prop trading firm.
For example, prop trading firms may impose maximum drawdown limits to mitigate risk. Stricter firms may even set tight daily and overall drawdown thresholds to safeguard traders’ accounts in the prop trading arena. Additionally, while most firms accommodate diverse trading strategies like scalping and day trading, restrictions may exist on algorithmic or news trading strategies.
Beyond merely following the rules, honoring these simple trading rules equips the trader with a clear and concise set of best practices. This set of practices not only aids in maturing and refining their own risk-management strategies but also enhances the accountability of their trading approach. A vital foundation for any of their trading endeavors moving forward.
Another element prop firms require of their traders is an understanding of their advanced trading platforms. Each prop trading firm has its unique terminal, and each trader should ensure they have complete proficiency with the infrastructure to make the trading process second nature. This includes becoming familiar with order types, trading styles, advanced trading tools, and everything else necessary for the effective execution of trades.
If a trader doesn’t understand the trading terminal at a prop trading firm, they may struggle to execute trades and use trading instruments effectively. For instance, let’s say a trader is not familiar with the order types available on the trading platform provided by their prop firm. As a result, they may inadvertently place incorrect orders or fail to utilize advanced order types that could help them optimize their trading strategies.
Proficiency with the trading terminal involves more than just basic familiarity; it requires mastering all aspects of the platform to the point where executing trades becomes second nature. Traders must know how to place these orders effectively to enter and exit positions according to their trading strategies.
By mastering these aspects of the trading terminal, traders can streamline the trading process and make informed decisions with confidence.
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Merely following market trends or impulsively crypto trading often leads to unfavorable outcomes in the crypto market. A successful prop trader prioritizes a pre-planned strategy, meticulously crafted in advance. Employing a well-defined, cohesive trading strategy offers numerous advantages at a prop firm. It provides a structured framework within which the trader can navigate the complexities of the market, facilitating the execution of successful strategies.
Moreover, it serves as a valuable learning tool, enabling the trader to glean insights from both successful maneuvers and unsuccessful market plays and experiment with different trading styles moving forward. By adhering to a predetermined strategy, prop traders enhance their ability to thrive in the dynamic landscape of trading.
The successful trader should establish their own risk-management rules to adhere to while trading cryptocurrencies. This includes determining the percentage of their capital they’re willing to risk on each trade, setting appropriate stop-loss levels, and remaining flexible to adjust their risk according to the conditions of their chosen setups. Adhering to these rules not only helps mitigate potential losses but also fosters discipline and consistency in trading practices. By prioritizing risk management, traders safeguard their capital and position themselves for long-term success in the unpredictable realm of financial markets.
As an example, some crypto traders may allocate a large percentage of their portfolio to large caps like BTC and ETH, a smaller percentage to blue chip DeFi protocols, and a smaller percentage to small unproven micro-cap tokens.
A strategy like this minimizes risk with exposure to large caps, while still maintaining a little exposure to the extremely volatile nature of small micro caps. Another way to manage risk may involve swing trading, where traders attempt to exploit short to medium-term price movements in a security using favorable risk/reward metrics.
These principles are effective only when the trader remains well-informed about trade news, events, and other factors shaping trading activities at any given time.
Significant events such as airdrops, token unlocks, and various market dynamics can significantly impact the trajectory of crypto assets. Successful crypto traders must strive to stay abreast of developments in the broader financial landscape. Factors such as the movement of the U.S. dollar, decisions made by the Federal Reserve and SEC, and developments like the approval of Bitcoin ETFs have all proven to show great influence over the market.
By maintaining a keen awareness of these external factors, prospective traders can make more informed decisions, adapt their strategies accordingly, and navigate the volatile cryptocurrency market with greater precision and confidence.
Maintaining a trading journal at crypto prop trading firms is essential. This practice allows them to track crypto prop trading earnings, review, and assess past performance meticulously. By analyzing their history, funded traders can identify patterns, strengths, and weaknesses in their strategies, thus encouraging continuous improvement and refinement for trading targets moving forward.
Trade journals can also provide a rich source of data and insights that go beyond normal observations. With access to detailed records of past trades, you can make more informed decisions and transform your trading strategy based on empirical evidence rather than relying on an amateur ‘hit and hope’ approach. This proactive approach allows traders to anticipate market movements more effectively and react strategically, thus enhancing their chances of success in the volatile cryptocurrency market.
For example, successful traders in the crypto market record the emotions they experience before and during trades to identify patterns and triggers that may lead to impulsive decisions. Emotions can greatly impact reading performance, and maintaining control over them is essential. It’s no different to a professional poker player who may be down for the night, and impulsively decides to double down in hopes of getting his money back.
An intuitive trader may notice the emotional patterns and then decide to mitigate them by implementing different strategies. Deep breathing, exercises, meditation, or taking breaks come to mind.
Traders who treat their prop trading account haphazardly will soon find themselves at a disadvantage. Just because they’re trading with starter capital that isn’t their own doesn’t justify taking undue risks they wouldn’t take with their personal funds. It’s crucial for traders to recognize the responsibility that comes with managing a prop trading account and to approach it with the same level of diligence and caution as they would their own capital.
Failure to do so can result in significant losses and hinder their progress as traders. Therefore, maintaining discipline, following risk management protocols, and adhering to a well-defined trading strategy are paramount for success in prop trading.
By treating their prop trading account with the respect it deserves, traders can maximize their chances of achieving profitable outcomes and advancing their trading careers.
Trust the pre-planned strategies you have devised beforehand and exercise patience in waiting for favorable trading setups. Allow your experience, pattern recognition, and intuition to guide your trading decisions instead of following the herd or jumping on today’s latest trend.
Moreover, successful trading requires patience. Traders must resist the temptation to act impulsively and instead focus on playing the market strategically. By exercising discipline and restraint, traders can avoid reactionary decision-making and remain aligned with their long-term objectives. This approach not only minimizes the risk of emotional trading but also enhances the likelihood of achieving consistent profitability over time.
Warren Buffett and Charlie Munger are some of the most successful investors of all time due to their patience, repeatability of tested strategies, and their ability to focus. Similarly, developing trading skills that mimic that strategy in the crypto market will be effective.
Furthermore, maintaining a patient and disciplined mindset allows traders to capitalize on opportunities that may arise in the market at crypto prop trading firms. By avoiding the urge to chase short-term gains or succumb to market FOMO (fear of missing out), traders can position themselves for success in the long run. Ultimately, patience is a cornerstone of successful trading, enabling traders to navigate the complexities of the market with confidence and resilience.
To achieve success as a crypto prop trader, one must integrate discipline, strategy, and knowledge with healthy habits such as patience and accountability to mitigate risk effectively.
Aspiring crypto prop traders should approach their work with the same level of dedication as they would if trading with their funds. They should embrace the stringent parameters set by in-house rules and frameworks, viewing them as opportunities to continually refine their skills and strategies.
Prop trading crypto at crypto prop trading firms entails significant responsibility. However, by adhering to these fundamental principles, traders can optimize their trading experience and enhance their prospects for both short-term gains and long-term success. Tools such as trade journals, maintaining accountability, keeping a sense of patience, and doing your best to stay on top of news will ensure you’re in a great place.
It is imperative to maintain a disciplined approach, execute well-thought-out strategies, and remain vigilant about risk management practices. Additionally, cultivating patience and holding oneself accountable for decisions are essential aspects of a trader’s journey toward achieving consistent profitability and sustainable growth in the dynamic cryptocurrency market.
Breakout’s crypto environment closely simulates live markets, featuring dynamic conditions mirroring real-time changes in spreads and order book depth.
