Most traders don’t blow up because their strategy is bad. They blow up because they ignore the basics. In prop trading, especially, the game is not just about making money. It is about surviving the rules: daily loss limits, overall drawdowns, and strict targets that punish overconfidence. If you want to make it in this business, every single trade must start with three things:
A stop loss to manage risk.
A profit target to optimize wins.
Proper position sizing to avoid ruin.
Let’s break them down and put some numbers behind why they matter so much in prop firm trading.
1. Stop Loss → Managing Risk Within Daily Limits
Imagine you are trading a $50,000 evaluation account with a 5% daily drawdown limit. That means if you lose $2,500 in a single day, your account is gone. One oversized trade without a stop could kill your entire chance of funding.
Example:
- You risk $5,000 on one trade (10% of the account).
- The trade goes against you.
- Instant failure because you have violated both the daily and max drawdown rules.
Instead, by setting a stop loss at 1% risk per trade ($500), you could take five consecutive losses and still live to fight another day. That is the difference between staying in the challenge or watching your login credentials get revoked.
2. Profit Target → Hitting the Firm’s Milestones
Prop firms do not just want you to survive. They want you to reach profit milestones. Most require around 10% profit to pass the challenge. On a $50,000 account, that is $5,000.
If your average win is $1,000 and your stop is $500, you only need five winning trades (at a 2:1 reward-to-risk ratio) to pass. Without a profit target, you risk holding too long and watching winning trades turn into breakeven or worse. Targets lock in progress toward the big milestone.
3. Position Sizing → Staying Below the Max Drawdown
The silent killer of most traders is position sizing. Even with a stop, if you size too big, your losses pile up quickly. Most firms set a 10% max overall drawdown. On a $100,000 account, that is $10,000.
Example:
- You size so that each trade risks $2,500.
- Four losing trades in a row equals $10,000 gone.
- Account closed before you ever had a chance to recover.
Instead, by risking 0.5–1% per trade, you give yourself 20–40 shots before hitting the limit. That massively increases your probability of long-term success.
The Bottom Line
Stop losses, profit targets, and position sizing are not just “nice to have.” They are non-negotiable survival tools in prop trading. Use them, and you give yourself the chance to hit targets, stay inside the rules, and actually collect payouts. Ignore them, and no strategy will save you from the rulebook.
In the end, trading is not just about finding winners. It is about avoiding the one mistake that ends your career in a single click.