What is Guerrilla Trading?

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01 Nov, 2021

7 min read

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Guerrilla trading is a short-term trading strategy that tries to make tiny, quick returns while assuming minimal risk per trade. This is done by making minor transactions during a single trading session. While the method is suitable for seasoned investors with resources, it is helpful to know more about it.

Introduction

Guerrilla trading refers to the method of trading made use of by traders that move within the financial jungle in short time frames with a goal to acquire quick profits while incurring minimum risks.

A trading characteristic that is key for guerrilla traders involves a limited time frame (smaller than a scalper) and the ability to make a day trader look as though they are involved in long-term investing.

The only systems to have trade timelines that are smaller than guerrilla traders are high-frequency systems.

The primary objective of guerrilla trading is to generate small profits across several transactions. This means that in order to be successful, such traders should experience minute commissions, major leverage and tight trading spreads.

Although guerrilla trading techniques can be employed within any financial market, they are best suited to foreign exchange trades. This holds particularly true in case of major currency pairs that are mostly liquid with low spreads.

Features of Guerrilla Trading

Guerrilla traders operate with the objective of acquiring low absolute profits across each trade. They trade several times within a single session such that the overall gains they acquire are sufficient to overlook the risks they incur while engaging in short-term trading.

Guerrilla trading ordinarily features the following characteristics.

An extremely short-term trading timeframe – Most guerrilla traders engage in trades that last a few minutes and rarely extend beyond this time frame. This is due to the fact that more time carved out for a trade implies more risks with the trade working against the trader.

Small profits with even smaller losses – Guerrilla traders are happy to earn only 10 to 20 pips via forex trade as opposed to scalpers whose objective may be to acquire double this figure if not 25 to 50 pips. This implies that guerrilla traders can’t risk more than a limited set of pips across a single trade such that the maximum losses they incur are limited to 5 to 10 pips.

Major number of traders – Guerrilla traders that are successful may carry out more than 25 to 25 trades within one trading session in instances that allow for frenzied trading. This is likely to arise in instances of important economic data being released.

Technical analysis – Owing to the short-term time frames, guerrilla traders ordinarily rely on technical analysis in order to time their trades. They are fluent with tick charts or 1-minute charts that identify entry and exist points for each of their trades.

Low commissions and spreads – Owing to the high number of trades and low-returns derived, guerrilla trading is majorly dependent on low commissions and tight trading spreads. Owing to this fact, such traders limit themselves to pronounced currency pairs that have high liquidity levels as opposed to rarely used currencies that might be a greater source of profit but lack liquidity.

Experienced traders – Ordinarily, only experienced traders make use of a guerrilla trading strategy and have successfully traded for several years. Those that are new to the market and aren’t encouraged to partake in this form of trading as they can finish their risk capital in no time.

Calculated risk-taking – Owing to the fact that guerrilla traders must be calculated in the risks they take on, they must have a stop-loss that amounts to a nominal number of pips per trade. They therefore might seek to remain on the side lines in instances of volatile markets and the risk of loss being too pronounced.

Traits Possessed by Guerrilla Traders

Guerrilla traders that are successful often possess the following traits.

Quick decision making – Forex markets are known to be fickle and successful traders must be able to make trading decisions with speed such that they can maximize their gains and minimize their losses.

Emotionally detached – Traders must be emotionally detached from each of their trades and hold on to no love for their trades that could put them in a position to lose. Neither should they hold onto any regrets pertaining to their trading decisions.

Sufficient risk capital – Successful guerrilla traders are in possession of a significant amount of risk capital and know just how much they ought to risk on individual trades as well as trades in their entirety.

Trading experience – Successful guerrilla traders are likely to have ample experience within high-pressure trading scenarios over the span of several years.

Conclusion

In order to be successful with guerrilla trading, it is important for traders to make sure their trading losses are minimal and expect that their gains in instances of profitable positions can offset such losses majorly. Automatic stop losses are a pertinent and viable guerrilla trading strategy.

Frequently Asked Questions

Q1. What is the main objective of guerrilla trading?
A1. The main objective of guerrilla trading is to generate small profits across several transactions. This means that in order to be successful, such traders should experience minute commissions, major leverage and tight trading spreads.

Q2. What is the trade timeline of a guerrilla trader?
A2. The trade timeline of a guerrilla trader is extremely short such that a day trader’s timeframe for traders looks like a long-term investment when compared to a guerrilla trader’s timeframe.

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