What is Guerrilla Trading
Guerrilla trading is a very short-term trading technique that aims to generate small, fast profits while taking on very little risk per trade by repeating small transactions multiple times in a trading session. Guerrilla trades typically have a shorter duration than scalping or day trades and seldom last for more than a few minutes, at the most.
Because of its high trading volume and limited return nature, low commissions and tight trading spreads are prerequisites for successful guerrilla trading. As it also demands considerable trading expertise, guerrilla trading is generally not recommended for novice traders. Guerrilla trading derives its name from the strategy of guerrilla fighting, which was a fighting technique that was highly unorganized and irregular in a larger fighting battle, or from the term used as an adjective to describe unorthodox and impromptu activities. Guerrilla trading resembles that of scalpers, but guerrilla trading actually takes place at an even faster pace than scalpers.
BREAKING DOWN Guerrilla Trading
While guerrilla trading can be applied to any financial market, it is particularly well suited for trading foreign exchange. This is because the major currency pairs typically have very tight trading spreads because of their plentiful liquidity that is virtually available around the clock. Many online forex brokers also offer levels of leverage to traders for trading currencies that are much higher than that available on equities.
But these elevated levels of leverage – which may be as much as 50 times the trader’s capital – represent a high-risk, high-reward scenario that can wipe out an inexperienced guerrilla trader in a few trading sessions. The ability to cap the loss on an unprofitable position quickly, before it spirals out of control, is therefore an essential trait for a guerrilla trader. With a profit objective that is limited to 10 to 20 pips per trade, guerrilla traders generally rely on advanced technical analysis systems for trading signals. Guerrilla trading is generally most successful in markets that have high leverage, low commissions and tight spreads.
Example of a Guerrilla Trade
An example of a guerilla trading strategy would be a trader who authorizes multiple USD trades, setting a maximum of less than $500 as the highest amount to pay per trade. If the trader had 25 trades, the risk potential is low at only $10 per trade and if the trader won a majority of the trades, he or she could stand to profit a fast $220 with a very low risk for profit loss.