Understanding the Micro Trading Strategy with Example
Have you ever heard of micro trading? Well, this word is not so popular, but the strategy is used by global traders. It can give you big profit that too, in a small duration.
As a leading financial education provider, Market Investopedia aims to equip our clients with diverse strategies. Thus, in this blog, we will have a look at what micro trading is with examples, pros, cons, and some exclusive tips. So, let’s get started
What is Micro Trading?
The meaning of micro trading is in its word itself. Micro means tiny, while trading means buying or selling financial assets to make profits.
The term micro trading collectively means buying and selling financial assets with the aim to take advantage of minor or tiny price changes.
Under this strategy, micro traders place small trades even of a few minutes and seconds. In the time other traders decide whether to enter or exit a trade, a micro trader opens, closes trades, and makes a profit.
Scalping, Grid Trading, High Frequency Algo trading, Futures Day trading, and Fast track trading are examples of micro trading. The strategy can be used for trading in forex, stock, indices, commodities, cryptocurrencies, and other financial products.
Example
Suppose a forex micro trader trades in EUR/USD pair. The pair was trending at 1.1705. The trader opens a buy position at 1.1705 and closes at 1.1710.
In this case, the trader made a profit of 5 pips. It may look small; however, if the trader places 30 trades like this in a day, and makes a profit of 5 pips in 20 trades and a loss of 2 pips in 10 trades. Then the overall profit will be 80 pips.
A quick glance
Open an account with a broker platform, select the trading instrument, and start micro futures trading.
Micro account in forex allows you to place small trades with micro lots.
Micro lot consists of 1000 units in trading.
Yes, micro trading is worth it. With proper knowledge and skills, you can make high profit with the strategy.
1 Micro trading is equal to one micro lot or 1000 units.
Key Features of Micro Trading
High Trade Frequency and Small Profits:
Micro traders aim for small profits somewhere between 5 to 10 pips. However, the trade number is much higher, around 10 to 60 in a day.
Automation:
Micro traders need to open and close a trade in the blink of an eye. Thus, they use highly advanced algorithmic software and trading bots for automation.
Focuses on Technical Analysis:
Micro traders mainly focus on technical analysis to identify buy or sell opportunities. They use technical analysis concepts, candlestick patterns, charting tools, and indicators to make trade decisions.
Top Notch Knowledge and Analytical Skills:
Micro trading includes advanced trading strategies and complex processes. Only a trader with in-depth market knowledge and excellent analytical skills can make consistent profits with it.
Pros of Micro Trading
Low Capital:
Micro traders generally trade with micro lots and place little trades. Thus, if the number of trades is less, they don’t need much capital.
Versatility:
Micro price movements are there in diverse financial assets. So, whether you are stock, forex, crypto, or any other trade, you can use the strategy.
Big and Quick Profits:
With micro trading, as you are trading micro movements, the profit per trade is small. However, due to high-frequency trades, the collective profit makes a big amount. Also, you don’t need to wait for profit for days. Micro traders can withdraw their profit as soon as the trade closes.
Cons of Micro Trading
Advanced Knowledge Required:
Beginners or traders with a lack of market knowledge cannot become micro traders. The strategy requires great understanding of the market, technical analysis concepts, and automated tools. So if you want to use the style, you first need to learn to trade.
High stress and Psychological Pressure:
Micro trading gives you more pressure than any other trading strategy. It involves a significant risk, plus you need to make quick decisions. So, with profit, micro trading can give you mental pressure, anxiety, stress, and frustrations. Thus, this strategy is not for the people who can’t handle stress.
Time-Consuming:
Micro trading is not at all a passive strategy. It requires active hours of participation. You need to dedicate significant time to watching charts, organizing technical analysis, placing and monitoring trades.
Tips for Micro Trading
- Be careful while selecting an ideal platform for trading. Go for high liquidity trading brokers with educational resources, top-notch speed, tight spreads, risk management, and automated tools.
- Micro trading needs a solid, tested plan. Identify trading instruments, time frames, entry, exit, and risk management criteria with profit expectations.
- Have a robust risk management plan, always use stop loss, and trade with a proper risk-to-reward ratio. Also, never risk more than 1% of your capital per trade.
- Don’t put all the eggs in one basket. Spread your trading capital into diverse correlated financial instruments to manage the risk efficiently.
- When you are placing numerous trades on a daily basis, trading fees can cost a significant amount. Take care of spreads and commission to protect your profit.
- Never place real trades at the initial stage. Start with demo trades, test your strategy, and examine the result first.
Wrapping Up
Micro Trading is a strategy with high profit probability and potential for doubling the account. However, the strategy involves significant risk, and you can only manage it with proper market knowledge.
Also with knowledge, you should have full control of your mental state and the ability to make quick decisions. In-depth market knowledge, solid analytic skills, effective plan, and robust risk management are key essentials for micro trading.
If you think you have these things, then you are all ready to start micro trading. Also, for learning a practical approach for micro trading, join our powerful webinars on trading.
