A few weeks back, I kicked off the Intelligent Investor Series as part of my weekly commentaries. Th...
Make Your Market Orders Work for You
08/11/2011 7:00 am EST
Useful functionality now built into most trading platforms allows for bracket orders, which offer flexibility, precise trade planning and execution, and best of all, valuable peace of mind.
Trading is stressful enough on its own, and all of us can, at times, have outside distractions that 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 opportunities, but the bottom line is that’s life and we have to find ways to get around it if we want to push ahead with our trading.
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 at whatever time you want. What originated as a simple alert has evolved into a multi-faceted tool that 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 desk 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.
NEXT: Learn How to Enter Bracket Orders|pagebreak|
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 (OCO) order is immediately and automatically placed.
This latter portion is actually a pair of orders that 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 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!
Bracket orders are excellent tools that 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 computer 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 while still limiting 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 until your heart’s content and without letting life’s distractions interfere with your plans!
Here’s a video I did a while back explaining a bit more about the topic. Even though it is older, the order entries are still the same today and work the same way.
By Jeff White, trader and blogger, TheStockBandit.net
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