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“Guerrilla trading” on Forex market
Written by: PaxForex analytics dept - Monday, 19 January 2015 0 comments
Such a colorful term as "guerrilla trading" refers to a particular style of Forex deals, which is typical for dexterous traders, who rush into financial "jungles" for a very short time, trying to get a quick profit with minimal risk.
A distinctive feature of guerilla-trader is a very short period of trade. The duration of a transaction for him is even less than that of a scalper and a day trader looks at the background of such partisan as a long-term investor.
The main objective of partisan trading is to make many minimal winning trades. Therefore, the success of the trader in this case depends on high leverage, low commissions and, most importantly, the narrow spreads. "Guerrilla" approach can be applied to any financial market. However, this method is best suited for use with currencies, in particular with the major currency pairs, which are renowned for their liquidity and low spreads.
Distinctive features of guerilla trading.
The essence of guerrilla trade is to receive for each transaction the absolute minimum profit. However, the number of transactions during the session should be big enough so that the total revenue could justify the risk of such a short-term trading. Based on this principle, we can distinguish the following features of partisan trading:
A very short period of trading. Average guerrilla deal lasts only a few minutes, and this time limit is rarely exceeded. The reason is that an increase in the duration of Forex trading order increases the risk that the market will turn against the trader;
Profit is smaller, loss is lower. Partisan trader will be quite happy to earn only 10-20 pips per trade. If we compare with the scalper, the aim of the latter
usually is about 25-50 pips. Thus, the guerrilla traders can afford to take a chance with just a few pips so that the maximum damages were limited to the same low levels of 5-10 pips;
Many trading deals. Successful partisan trader makes about 20-25 Forex orders within a single trading session, if market conditions are favorable for such active trading;
Partisan relies on technical analysis. Due to the short-term deals, such traders generally rely on technical factors. To determine the exact entry and exit points are used minute or tick charts;
Low level of commissions and spreads. Guerrilla trading largely depends on low commissions and narrow trading spreads, as is conjugate with a lot of trades and brings low income. Therefore, usually in the field of partisans are the major currency pairs with guaranteed liquidity, rather than exotic currencies with higher potential profit, but much less liquid;
Big experience in currency trading. Typically, experienced traders, who are in the market for years, are engaged in guerrilla trading. It is not recommended for beginners to practice this type of trading, as they may lose their risk capital in just several sessions;
Calculated risk. Partisans always calculate the risk for each trading deal. Therefore in periods of high volatility, they may prefer to wait, as the risk of loss is too big.
Guerrilla trading is not as simple as it might seem at first glance, so it should deal only with experienced traders who have sufficient capital. If this type of trading is in the interest of novice traders, it’s better for them to first try scalping or day trading as a partisan trading requires more skills.