DEFINITION of ‘Guerrilla Trading’
A very short-term trading technique that aims to generate small profits while taking on very little risk per trade and repeating this 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.
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.