This is something I sent to my accountability partners and a few others. For me, it was a moment where I realized my brain was all screwed up from prop trading. While the good firms encourage healthy trading behavior, something caused me to pursue profits in an unhealthy way.
What should our goal be as a trader? And more specifically, a prop firm trader. Should we reprogram our way of thinking when it comes to prop firms?
ONLINE PROP FIRM ROCKSTARS
Case 1 – the $200 a day trader.
This was the “slow and steady” way up till a few months ago. The goal was $200 a day, every day, and take payouts.
Major assumptions: 250 trading days, all $200 in profit, $2,000 in initial capital.
$50,000 profit in 1 year. That is a whopping 2,500% return on initial capital. This would be legendary in the world of finance.
Keep in mind that this was the slow and steady way. Most traders aimed HIGHER than this. Makes me wonder… why?
Case 2 – the $150 a day trader.
This is the new “slow and steady” way after the recent payout rule changes. The goal is $150 a day, every day, and take payouts.
Major assumptions: 250 trading days, all $150 in profit, $2,000 in initial capital.
This would be $37,500 in profits in 1 year. That is a whopping 1,875% return on initial capital. Still legendary. Again, nobody is really shooting for this. Everyone wants MORE.
Case 3 – There has to be losing days.
Let’s say 80% winning days and 20% losing days, and let’s do 1:1. Either the day would end at $150 profit or a $150 loss. This means hitting DLL one day a week and hitting PDPT on all others.
Major assumptions: 250 trading days, 80% are $150 in profit, 20% are $150 loss, $2,000 in initial capital.
This would be $22,500 in 1 year = ((80% x 150) – (20% x 150)) x 250
Again, a whopping return on capital of 1,125%. Your average week (assuming 52 weeks) would be $432.69. For some reason, a lot of Topstep Traders would look at that week and think “that’s too slow”. Nobody posts $432.69 for the week and brags. Nobody would see it and think that’s good enough. The world of finance would call you a rock star for 1,125% in a year and rightfully so.
Case 4 – Let’s say we aren’t even rock stars.
Let’s say 60% winning days and 40% losing days, and let’s do 1:1. Either the day would end at $150 profit or a $150 loss. So 2 full days of DLL a week and the rest at PDPT.
Major assumptions: 250 trading days, 60% are $150 in profit, 40% are $150 loss, $2,000 in initial capital.
This would be $7,500 in 1 year = ((60% x 150) – (40% x 150)) x 250
This would be 375% in a return if you started off with $2,000 in initial capital. Your average week (assuming 52 weeks) would be a paltry $144.23. This would drive the majority of Topstep Trader into scaling up too early out of the need to go faster. Again, still considered a rockstar in the real world if you can do 375% in a year.
Case 5 – The Compounding Hero
We’ve all done the compounding math, I think. All of the above examples have absolutely no compounding. No scaling up whatsoever with the account balance. Yet we all prepare for it with our accounts. Most of us plan to add more contracts as the balance goes up (and hopefully not before like we’ve all done before).
Let’s start off with Case 4, where we aren’t even “good” in the world of prop traders but the reality is that we are.
Let’s assume monthly compounding, which nobody ever scales up based on monthly. So $7,500 / 12 = $625. $625 / $2000 = 31.25%. Monthly compounding at 31.25% would bring a $2,000 initial balance to a $52,266 balance (= (1+31.25%)^12 x 2000). This is a 1-year return of 2,513%.
Keep in mind that we are back to absurdly high rates of return on 1) a monthly rate of return that would be so slow at Topstep (or any prop) that we would crash our accounts out of impatience as an online prop trader, and 2) compounding at a monthly rate when we want to scale up even faste.
Imagine taking this monthly compounding rate of return and doing it for even just 2 years. Yes, that would be millionaire with a $2,000 initial balance after 2 years. Please. Don’t be absurd.
Yet somehow, along the way of our journey, whether it’s at Topstep, Tradeify, or Apex… our brains were somehow programmed to think that $625 in monthly profit per $2,000 in drawdown means you suck at trading. That’s not even a payout. And this way of thinking causes us to crash and burn…. A LOT.
You’re actually a hero.
WHAT SHOULD WE AIM FOR THEN?
I think as online prop traders we should definitely aim as high as we can. The opportunity and low barrier suggest we should. Why wouldn’t we give it our all? HOWEVER, I think it’s important to base our expectations off of reality. What exactly is it that we should aim for? I think most of us dream of getting good enough at trading with a prop and then moving on to personal capital. But for some reason, the prop game has moved our expectation so far from reality that we are messing ourselves up.
Let’s say we never touched a prop firm, and we could get back to a healthy way of thinking about trading. At what point would you think you’re a successful futures trader? I just made an arbitrary assumption that if you can make $100,000 in profits or more in a year then you’re doing great. How can we ever get there?
Case 6 – The future professional
Let’s start with some assumptions:
- Let’s say we start with $2,000 (like a “$50k” account)
- We make $625 per month per $2,000 in drawdown with 2 MES (as experienced prop firm traders, we all probably think this is doable and arguably “too slow!”)
- At the end of each month, we pay some of it out because that’s the ultimate goal. Less payout in the beginning so that we can grow the account
- Payout 25% of monthly profits during year 1 and year 2
- Payout 50% of monthly profits during year 3
- Payout 75% of monthly profits during year 4
- At the beginning of each month, we stick to the scaling plan of 1 MES per $1,000 in capital AND that once we reach 30 MES / 3 ES then we stop scaling up.
What could the above look like?
- Year 1 = $25,312.50 in profits with $6,328.13 in payouts
- Year 2 = $107,812.50 in profits with $26,953.13 in payouts
- Year 3 = $112,500 profits with $56,250 in payouts
- Year 4 = $112,500 profits with $84,375 in payouts
- Remaining trading capital after year 4 = $186,219 (this is after all payouts)
We’ve reached the arbitrary assumption of $100,000 in profits by year 2. A healthy $84,375 in payouts by year 4 and a really healthy ending balance to continue trading.
Somehow, props led us to want to get to Year 4 by Year 1. And the more time we linger with that mindset, the farther away Year 4 gets. Let’s get to Year 4 the sensible way. Take four years.
Notes:
- Starting balance at $2,000
- Profit for first month = $625
- Profit for month 2 onward = $312.50 per MES
- # of MES contracts (scaling) in each month = the month’s starting balance / $1,000 and rounded down to be conservative. A $13,999 balance would still be at 13 MES but a $14,000 balance would be at 14 MES.
- # MES contracts is capped at 30
- Monthly payout in year 1 & 2= 25% of the monthly profit, year 3 = 50% of the monthly profit, and year 4 = 75% of the monthly profit.
- Starting balance from month 2 onward = previous month starting balance + profits – payouts
You could replace MES with MNQ if you wanted. Prop firm MNQ traders would probably think $625 per month per 2 MNQ is a walk in the park!
| Month | Beginning Balance | Profit | Payout | Position Size in MES |
|---|---|---|---|---|
| 1 | 2,000.00 | 625.00 | 156.25 | 2 |
| 2 | 2,468.75 | 625.00 | 156.25 | 2 |
| 3 | 2,937.50 | 625.00 | 156.25 | 2 |
| 4 | 3,406.25 | 937.50 | 234.38 | 3 |
| 5 | 4,109.38 | 1,250.00 | 312.50 | 4 |
| 6 | 5,046.88 | 1,562.50 | 390.63 | 5 |
| 7 | 6,218.75 | 1,875.00 | 468.75 | 6 |
| 8 | 7,625.00 | 2,187.50 | 546.88 | 7 |
| 9 | 9,265.63 | 2,812.50 | 703.13 | 9 |
| 10 | 11,375.00 | 3,437.50 | 859.38 | 11 |
| 11 | 13,953.13 | 4,062.50 | 1,015.63 | 13 |
| 12 | 17,000.00 | 5,312.50 | 1,328.13 | 17 |
| 13 | 20,984.80 | 6,250.00 | 1,562.50 | 20 |
| 14 | 25,671.88 | 7,812.50 | 1,953.13 | 25 |
| 15 | 31,531.25 | 9,375.00 | 2,343.75 | 30 |
| 16 | 38,562.50 | 9,375.00 | 2,343.75 | 30 |
| 17 | 45,593.75 | 9,375.00 | 2,343.75 | 30 |
| 18 | 52,625.00 | 9,375.00 | 2,343.75 | 30 |
| 19 | 59,656.25 | 9,375.00 | 2,343.75 | 30 |
| 20 | 66,687.50 | 9,375.00 | 2,343.75 | 30 |
| 21 | 73,718.75 | 9,375.00 | 2,343.75 | 30 |
| 22 | 80,750.00 | 9,375.00 | 2,343.75 | 30 |
| 23 | 87,781.25 | 9,375.00 | 2,343.75 | 30 |
| 24 | 94,812.50 | 9,375.00 | 2,343.75 | 30 |
| 25 | 101,843.75 | 9,375.00 | 4,687.50 | 30 |
| 26 | 106,531.25 | 9,375.00 | 4,687.50 | 30 |
| 27 | 111,218.75 | 9,375.00 | 4,687.50 | 30 |
| 28 | 115,906.25 | 9,375.00 | 4,687.50 | 30 |
| 29 | 120,593.75 | 9,375.00 | 4,687.50 | 30 |
| 30 | 125,281.25 | 9,375.00 | 4,687.50 | 30 |
| 31 | 129,968.75 | 9,375.00 | 4,687.50 | 30 |
| 32 | 134,656.25 | 9,375.00 | 4,687.50 | 30 |
| 33 | 139,343.75 | 9,375.00 | 4,687.50 | 30 |
| 34 | 144,031.25 | 9,375.00 | 4,687.50 | 30 |
| 35 | 148,718.75 | 9,375.00 | 4,687.50 | 30 |
| 36 | 153,406.25 | 9,375.00 | 4,687.50 | 30 |
| 37 | 158,093.75 | 9,375.00 | 7,031.25 | 30 |
| 38 | 160,437.50 | 9,375.00 | 7,031.25 | 30 |
| 39 | 162,781.25 | 9,375.00 | 7,031.25 | 30 |
| 40 | 165,125.00 | 9,375.00 | 7,031.25 | 30 |
| 41 | 167,468.75 | 9,375.00 | 7,031.25 | 30 |
| 42 | 169,812.50 | 9,375.00 | 7,031.25 | 30 |
| 43 | 172,156.25 | 9,375.00 | 7,031.25 | 30 |
| 44 | 174,500.00 | 9,375.00 | 7,031.25 | 30 |
| 45 | 176,843.75 | 9,375.00 | 7,031.25 | 30 |
| 46 | 179,187.50 | 9,375.00 | 7,031.25 | 30 |
| 47 | 181,531.25 | 9,375.00 | 7,031.25 | 30 |
| 48 | 183,875.00 | 9,375.00 | 7,031.25 | 30 |
| ENDING / TOTAL | 186,218.75 | 358,125.00 | 173,906.25 |
