What is a Bracket Trade?
Traders from around the world! How are you? I greet you with glad tidings and I hope you've had to buy some more rakes for all that cash.
In this article, I want to help define and give some examples of a very popular, useful and friendly tool available through most brokers. It's called the OCO order. It stands for order cancels other.
You might have heard the term 'bracket tradeâ€ before. OCO and bracket pretty much mean the
same thing. Usually the term bracket trade is more synonymous with entering a trade.
How is it used?
OCO orders are most commonly used with stocks, but really can be used for any double order. They can effectively be used on both day trading and swing trading. They are very effective because they allow you to leave the computer. What a notion! The broker does all of the work for you. This can work with a stock or an option.
An entry bullish would cancel a bearish entry on stock XYZAn entry bearish will cancel a bullish entry on stock XYZOnce a trade has been filled on stock XYZ, an OCO order can be used to exit at a stop loss or exit at a target. Whichever one triggers will cancel the other live order. This can easily work on either a bullish or bearish trade.
Those are just three of the most popular examples. Really, when I am day trading bullet three is my favorite. That way, if I need or want to leave the house, I can. I triple check that my stop is in the right place, my target is in the right place and I make sure I am back before market close.
This is a great time to bust out an exercise, do some chores, cook, clean, whatever. That way if the stock hits your target, you exit for a profit and your stop order is simultaneously closed, so you don't stress out about the possibility of triggering into another order. This alleviates a lot of stress when trading and allows to you to enjoy life as a trader.
Just my take on the OCO order. To catch up on some other exciting broker orders, check out this video entitled 'Stop Market vs Stop Limit Orders.â€