← Back to Blog · 2026-09-04 · 5 min read · Challenge Guide
You’ve backtested your strategy. The win rate looks decent, the equity curve is smooth, and you feel ready. You start trading live, hit a rough patch, and before you know it, you’re staring at a drawdown limit breach. Sound familiar? The gap between a good strategy and a successful funded trading plan is risk architecture.
At XS Select, our standard China futures evaluation asks for a 29% profit target paired with a strict 5% maximum drawdown rule. That is a 5.8:1 return-to-risk ratio. You can’t hit this by accident, and you certainly can’t hit it by treating your account like a lottery ticket. You need a blueprint that translates high-level percentages into concrete, tick-by-tick execution rules.
Decoding the 29% Target and 5% Drawdown
Before you look at a single chart, you need to understand the math of what you are trying to achieve. A 29% target is aggressive, but it is entirely achievable if you respect the 5% drawdown ceiling. If you are trading a $10,000 evaluation account, your maximum drawdown is $500. Your goal is to turn that $10,000 into $12,900.
Here is the hard truth: you cannot risk 5% on a single trade. If you do, one bad day ends your evaluation. To survive the inevitable losing streaks, your per-trade risk needs to be a fraction of your total drawdown limit. Risking 1% of the initial account balance ($100 per trade) gives you a theoretical buffer of 5 consecutive full-losses before breaching the limit. Risking 0.5% gives you 10 chances.
Rule of thumb: Your maximum daily loss should never exceed 2% of your account balance. This ensures you live to trade another day, preserving your capital for the setups that will actually drive your 29% return.
Selecting the Right Chinese Commodity Futures
To achieve a 29% target without blowing through a 5% drawdown, you need markets that offer liquidity and sufficient volatility. Chinese commodity futures are uniquely structured for this. The sessions are highly liquid, gaps are relatively controlled compared to overnight Western markets, and the contracts respect technical levels beautifully.
If you want to trade rebar/iron ore, you are tapping into the heartbeat of global industrial demand. Both contracts are heavily traded by retail and institutional participants, meaning you get tight spreads and reliable order flow.
Contract Specs You Must Know
Let’s look at the actual specifications you need to calculate your position size and risk:
| Contract | Exchange | Contract Multiplier | Tick Size | Tick Value |
|---|---|---|---|---|
| Rebar (rb) | SHFE | 10 tons/lot | 1 RMB/ton | 10 RMB |
| Iron Ore (i) | DCE | 100 tons/lot | 0.5 RMB/ton | 50 RMB |
| Copper (cu) | SHFE | 5 tons/lot | 10 RMB/ton | 50 RMB |
Notice the difference in tick value. One tick in Iron Ore is 50 RMB. If the USD/CNY exchange rate is roughly 7.2, that single 0.5 RMB price movement is worth about $7. Understanding this math is the difference between professional risk management and gambling.
Position Sizing for the 5% Ceiling
Let’s build a practical position sizing model. Assume a $10,000 account. Your max drawdown is $500. You decide to risk 1% ($100) per trade. You want to trade Iron Ore on the DCE.
You spot a breakout setup and determine your technical stop loss needs to be placed 5 points away from your entry. Since 1 point equals 2 ticks, a 5-point stop means a 10-tick move against you.
- Stop Loss Distance: 5 points
- Value per point: 100 RMB (because the multiplier is 100 tons/lot)
- Risk per lot: 5 points * 100 RMB = 500 RMB
At an exchange rate of 7.2, 500 RMB is approximately $69. Because your maximum allowed risk is $100, you can safely take 1 lot. If your stop loss needed to be 10 points away, your risk per lot would be 1,000 RMB (roughly $139). In that scenario, taking the trade would violate your 1% risk rule. You either skip the trade or wait for a better entry that allows for a tighter stop. This is how you mathematically enforce your 5% drawdown limit.
Strategy Selection: Trend Following in China Markets
With a 5.8:1 return-to-risk ratio, you need a strategy with positive expectancy. Scalping for ticks rarely generates 29% returns without eventually hitting a streak of slippage that triggers the 5% drawdown. Trend following, specifically breakout strategies, is historically well-suited for Chinese commodity futures.
Consider the massive 2021 thermal coal rally on the Zhengzhou Commodity Exchange (ZCE). Prices surged dramatically due to severe supply constraints and high demand, before exchange interventions eventually cooled the market down. A trend follower using a breakout entry and a trailing stop would have captured a massive portion of that directional move. More importantly, when the market eventually reversed sharply, the trailing stop would have protected the profits, preventing a sudden drawdown spike.
You don't need to catch the exact bottom or top. Your goal is to identify a trend, enter on a consolidation breakout, and let the trailing stop do the heavy lifting. When you trade rebar/iron ore, look for breakouts of multi-day ranges during the opening of the daytime session (09:00 AM Beijing time) or the night session, when volume is highest.
Practical Application: Your Daily Routine
A trading plan is useless without execution. Here is how you structure your day to navigate a futures evaluation successfully.
1. Pre-Market Preparation
Check the economic calendar for China-specific data releases. PMI data, industrial production figures, and infrastructure spending announcements heavily impact metals like rebar and copper. Know exactly when these drop so you aren't caught in a volatility spike that skips your stop loss.
2. Identifying the Setup
Scan your watchlist for instruments trading near multi-day highs or lows with tightening volatility. Draw your support and resistance levels. If Iron Ore is consolidating just below a major resistance level, place a buy stop order 2 ticks above that level.
3. Execution and Management
When filled, immediately place your stop loss. Do not mental-stop in a futures evaluation; slippage and emotion will destroy you. Once the trade moves in your favor by 1R (the amount you initially risked), move your stop to break even. If the trend continues, trail your stop behind subsequent swing lows (for longs) or swing highs (for shorts).
4. The Daily Kill Switch
If you hit a 2% daily loss, shut down the platform. Do not try to make it back in the same session. The 5% max drawdown rule is a marathon, not a sprint. Protecting your capital on bad days is what allows you to capture the 29% target on the good days.
Closing Thoughts
Designing a trading plan for a 29% target and 5% max drawdown isn't about finding a magic indicator. It is about building a mathematical framework where your winners are large enough to compound, your losers are small enough to survive, and your daily routine removes emotion from the equation. Treat your 5% drawdown limit as a fortress wall, and your 1% per-trade risk as the guards on that wall.
Once you have your system mapped out and your position sizing math dialed in, the next step is putting it to the test under real market pressure. You can test your system on a real-data China futures evaluation at XS Select, with challenges starting from $29. Build your plan, respect the math, and prove your edge.