If you are looking for an extremely active approach to the financial markets, guerilla trading offers a unique strategy. Instead of long-term investments, guerilla trading involves multiple, quick trades within a single day.
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It's not for everyone, but this article will take you through exactly what guerilla trading is and how to potentially implement this fast-paced, short-term trading method.
What is Guerilla Trading?
Guerilla trading is a short-term trading strategy where multiple trades are made in a single trading session, with each of them typically ranging from seconds to a few minutes. The short trading duration minimizes the risk exposure, generating quick and small profits from each trade when done right.
In this article, we are going to look at:
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How Guerilla Trading Strategy Works?
So, how does a guerilla trading strategy work in practice?
Guerrilla trading bears a close similarity to scalping and high-frequency trading due to the large number of trades involved and the short holding periods. The ultimate goal of a guerrilla trader is to make multiple trades, hold them for a few seconds to minutes, and then exit with a small profit.
Traders who trade with such a high frequency tend to focus on minimising losses, given their tiny profit margins. This is because one big loss could significantly impact a guerrilla trader’s account.
Example of a Guerilla Trade
An excellent example of a guerrilla trading strategy is a trader who trades the EUR/USD currency pair, the most liquid major pair, with a maximum daily loss limit of $500. Therefore, if the trader risks $10 per trade and makes approximately 25 trades daily, they will incur a maximum loss of $250, half their daily limit.
If the trading strategy has a win rate above 50% and a risk:reward ratio of 1:2, the trader’s likelihood of being profitable at the month-end is relatively high.
Characteristics of Guerrilla Trading
There are various characteristics that are evident in guerilla trading as opposed to longer-term position trading, investing, or even scalping.
Faster than Scalping: The average trade for a guerrilla trader only lasts a few minutes. This is because the longer the time spent in a trade, the greater the risk that it can go against the trader.
High Volume: Successful guerilla traders may execute more than 20 to 25 trades in a single trading session when conditions are conducive to such frenzied trading.
Small Returns: Guerrilla traders are quite content to make a small number of pips, ticks, points, etc., per trade compared with a scalper who may have slightly higher targets.
Low Commissions and Tight Spreads: High trading volume and low guerrilla trading returns are heavily reliant on low commissions and tight trading spreads.
Small Losses: Due to its small returns, a guerrilla trader cannot afford to risk too much on a single trade. They have to be disciplined and cut losses frequently.
Guerilla Trading in Forex
Guerrilla trading for the Forex markets works best on major currency pairs that are the most liquid and have minimal spreads. Guerrilla traders usually have low pip targets and even lower pip stop losses. They typically trade very volatile pairs and hold their trades for seconds to minutes.
As a guerrilla trader in the Forex trading markets, your goal is to make quick trades and book small profits. Your methods are slightly different from those of the scalper as you make your trades based on price movements within tick charts and 1-second to 1-minute charts. You also hold your trades for shorter durations than the scalper.
Guerilla Trading Strategy in Stock Market
This quick-fire strategy is, of course, not limited to the Forex market only. You can implement this technique in trading the stock markets as well.
Guerrilla stock trading involves taking highly leveraged stock trades and holding them for short periods to make small profits. Using guerrilla trading strategies to trade stocks means that your trades are much faster than those of scalpers, as you are looking to make minimal profits.
Guerilla Trading Tips
Wondering how to excel using this strategy or if this style of trading suits you? Here are the top tips to become a successful guerrilla trader:
- It is important to cut losing trades quickly in order to maintain a solid risk-reward ratio.
- Focus only on very liquid trading instruments
- Major Forex pairs and popular stocks such as the FAANG or “Magnificent 7” grouping are very liquid.
- Trade instruments that have low spreads and commissions to minimise costs.
- Beware of large spreads that could eat into your profits.
- Make a huge number of trades, 20-25 per day, to earn decent profits.
Guerilla Trading Advantages & Disadvantages
As with anything in the markets, there are advantages and disadvantages and guerilla trading is no different.
| Advantages | Disadvantages |
|---|---|
| High Profit Potential: With multiple trades per day, each aiming for small gains, guerilla trading presents the opportunity to generate substantial profits over time. However, remember, this potential comes with higher risk. | Time-Consuming: Guerilla trading requires constant monitoring and analysis to be effective, meaning it can be incredibly time-consuming. Be prepared to dedicate significant hours to actively managing your positions. |
| Fast-Paced Excitement: If you prefer the thrill of fast decision-making and immediate results, guerilla trading's fast-paced nature can be highly appealing. | Psychological Strain: The rapid pace and inherent risk of guerilla trading can be mentally challenging. It requires strong emotional control and discipline to avoid impulsive decisions under pressure. |
| Enhanced Risk Management: The focus on small, quick trades allows for tighter stop-loss orders, potentially limiting losses on any single trade. Risk management discipline is a key aspect of guerilla trading. |
