August 12, 2009 at 9:54 am | | Comments 5

Peace of Mind With Bracket Orders

Trading is stressful enough on it’s own, and all of us can at times have outside distractions which pull our attention away from the trading screens. Whether it’s a work project, a trip to the doctor, travel plans or tax season, there can be a constant flow of interruptions to your trading.

Some of them can mean actual losses while others mean missed opportunity, but the bottom line is that that’s life and we have to find ways to get around them if we want to push ahead with our trading.conditional-orders

Enter the Bracket Order

I’ve been using these with thinkorswim for some time now, and I’ve really been pleased. Their platform has a ton of features for options traders, but they didn’t neglect those of us who trade stocks.

I particularly like the bracket order capabilities, and I use the ‘1st Triggers OCO’ all the time in my swing trading. It’s nice to be able to set up a trade when you know your entry, stop and target, and be able to trust that it is being taken care of so that you don’t have to watch it. That allows me to spend my time seeking out new trades rather than managing existing positions.

These conditional orders are pretty amazing, and they’ve gotten sophisticated enough that they can accomplish pretty much whatever you want done at whatever time you want it. What originated as a simple alert has evolved into a multi-faceted tool which many of us will never again trade without.

Traditional order types are available everywhere, and if used properly can sure help you implement your trading plan better than you could without them.

But why ride the bus if you can be chauffeured around in a limo?

Using old-school order types like a stop buy order can certainly help you catch an entry on that trade you’ve been stalking, but won’t you need to protect your capital with a stop loss order rather quickly after your order is filled? What happens when that busy life of yours prevents you from being at the PC when it’s time to put in that safety net? You’re up a creek without a paddle.

If you could structure your entire trade in one order, wouldn’t you do it? If you know the price at which you’ll enter a trade, stop out, and take profits, then let technology help you. I can’t think of an excuse good enough to avoid using these orders, because they truly are the best thing out there.

How it Really Works

I’ve been using this functionality in the form of ThinkOrSwim’s “1st Triggers OCO” orders, so let me explain. The “1st” portion is my entry order, such as ‘buy XYZ @ $25.” The ‘Triggers OCO’ portion means that once I am filled on my XYZ purchase, a One-Cancels-Other order is immediately and automatically placed.

This latter portion is actually a pair of orders which the system will manage for me. If I set a limit sell at a higher price for taking profits, and a stop loss down below as my safety net, then I’ve structured my XYZ trade in such a way that I know my risk and my potential reward. Because I only want to sell my shares once but yet have two sell orders, the system will automatically cancel the remaining order once the first one is filled. So if XYZ climbs to my target and I sell for a gain, my stop loss order is canceled. If on the other hand XYZ were to fall to my stop level before reaching my profit target, the system will execute my stop and cancel my remaining (unfilled) limit order since I no longer own shares to sell. Pretty sweet!

Here’s a video explaining it. Select the HD option and go full-screen for best quality:

Bracket orders are excellent tools which offer the trader a ton of flexibility (there are many more of these advanced order types), but in my opinion the best thing they offer is peace of mind.

There’s just something about knowing that your plans for a trade will be carried out whether you’re at the PC or not. That gives me the freedom to put my trading ideas into motion, knowing full well that I will be able to book profits where I see fit and yet limit my losses in case I am wrong (barring an adverse price gap in the stock of course).

If you’re not using conditional orders in your trading, you should be! They can quickly become a part of your daily routine, giving you the ability to trade to your heart’s content without letting life’s distractions interfere with your plans!

Trade Like a Bandit!

Jeff White
Producer of The Bandit Broadcast

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  1. Thinkorswim is a great service. I did not realize the full range of conditional orders offered so I will have to check it out further. As for the more traditional orders, a surprising number of brokers don’t offer much beyond basic market and limit orders.

    Interactive brokers and thinkorswim seem to be a cut above the rest of the competition in this area.

  2. TradeStation is amazing with the stuff they offer (even more advanced than Interactive Brokers and thinkorswim) (I have accounts with all three).

    But….TradeStation has a high $99.00 platform fee if you trade less than 5000 shares per month – so only worth it if you are a day trader IMO. I’m currently switching back to IB & TD Ameritrade for this reason. If I have a slow month I hate paying $99.00 just to access their platform.

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