Simon has over six years of professional trading experience across FX, commodities and equities. He has a strong passion for financial markets and is particularly focused on price action 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:
If you’re ready to learn more about guerilla trading, let’s get started.
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.
The best example of this type of trading is bond traders who usually trade based on ticks and have a target profit of anywhere from 3-6 ticks. Bond traders also tend to have very strict risk management strategies given the expensive value of their trades.
Such traders are obsessed with minimising their losses given their tiny profit margins. It would take many trades before the guerrilla trader’s account recovers from a huge loss.
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 trader 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 risk: reward ratio of 1:2, the trader’s likelihood of being profitable at the month-end is relatively high. This trading strategy’s main advantage is that the trader always has a fixed risk amount for each trade, unlike in discretionary systems.
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These are some of the characteristics of guerrilla trading:
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.
Successful guerilla traders may execute more than 20 to 25 trades in a single trading session when conditions are conducive to such frenzied trading.
The guerrilla trader is quite content to make only 10 to 20 pips on a forex trade, compared with a scalper who may have an objective of more than twice this amount or 25 to 50 pips.
High trading volume and low guerrilla trading returns are heavily reliant on low commissions and tight trading spreads.
Due to its small returns, a guerrilla trader cannot afford to risk more than a few pips on a single trade, with the maximum loss capped at levels as small as 5 to 10 pips.
Guerrilla trading for the Forex markets works best on major currency pairs that are the most liquid and have minimal spreads. Guerrilla traders usually target profits of 10-20 pips on Forex trades while risking less than 5 to 10 pips per trade. 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 books 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.
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.
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:
Guerrilla trading is much faster than scalping with lower holding times but is much slower than high-frequency trading done by algorithms. Traders who are scalpers can quickly become guerrilla traders if they have faster execution speeds than other scalpers. However, keep in mind that your main competition will be high-frequency trading algorithms.
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