What is a Bracket Order and How to Use in Day Trading and Swing Trading


What is a Bracket Order and How to Use in Day Trading and Swing Trading

The bracket order is a more advanced order type that can improve your day trading and swing trading significantly.

Remember the last time you got into a trade and forgot to place your stop loss order or your take profit?

In this article I will show you how to avoid that problem, and improve your risk management at the same time.

 

What is a Bracket Order?

A bracket order is essentially a cluster of orders that are released at the same time.

Suppose you want to purchase a stock when it trades down to $29.80.

What order would you place?  A buy limit.

But when it trades down to $29.80 and you get filled, you will have to put in a stop loss order automatically.

What if you forget and the stock drops 50%?  This is why traders love the bracket order.

The bracket order releases both a buy and sell order at the same time – which are “bracketed” together.

So if you want to buy the same stock at $29.80 and set an automatic stop at $29.50 you will place a bracket order that will:

  1. Buy limit at $29.80
  2. Sell stop at $29.50

This will automatically ensure you have a protective stop as soon as you are in the trade, which removes the entire process of having to place a stop loss manually. Your risk management life just got easier!

 

How to Place a Bracket Order

Every broker is different, so it is on you to check with yours on how to set a bracket order on your trading platform.

If your broker does not offer brackets, it is highly advisable to switch to one that does.

Before placing a bracket order, there are a few things you want to know about:

  1. What level do you want to place your stop loss order
  2. What level do you want to place your take profit order

This will ensure that as soon as you are triggered into a trade, you will have both a stop loss and profit taker.  If you plan to be a swing trader, or don’t want to sit in front of the computer the entire day – this order is for you.

You can comfortably walk away from your computer, knowing the trade will exit itself once your maximum risk or maximum profit is achieved.

 

Example of Placing a Bracket Order on Trading View with CQG Brokerage

Here is an example of an order ticket to buy the SP500 futures contract using a bracket order.

In this example, a trader is placing the following entry criteria in their bracket order:

  1. Buy SP500 futures (ES) at 2,627.75 limit order
  2. Sell entire position at loss (stop loss) when it trades to 2,621.50
  3. Sell entire position at profit (take profit) when it trades to 2,646.60

TradingView Bracket Order

 

When Should I Use a Bracket Order?

You should be using a bracket order on every single trade!

Whether you intend to close the trade manually, or you plan to wait for the stop or target to be hit.

If you are a day trader or swing trader, you should always use a bracket order for every trade also.

When using these orders you are freeing yourself from having to be at the computer every second.

What if your internet cuts out? What if you have an emergency?

Your trade will be safe with a bracket order!

 

When is a Bracket Order Submitted to Market?

A bracket order is sent to the market when the condition is triggered.

For example, assume you put a bracket limit order to buy a stock for $29.80 and attach a stop at $29.50 with a profit taker at $30.50.

Your bracket order is triggered only when you buy the stock at $29.80 and sends the other bracketed orders to the market at the same time.

In the example above however, if you have a bracket at $29.80 and your internet cuts out – neither of your orders will be activated. This is very important to know.

Bracket orders are held on the computer until they are triggered, and only then sent to the market.

On the other hand, if your buy limit triggers and the brackets are placed for a stop loss and take profit, even if the internet cuts out those orders will remain on the market. This is because they have been already sent to market as explained above.

 

What is a Bracket Order – Conclusion

Bracket orders are a vital part of your risk management strategy.

If you have not used them yet, it’s time to start right away.  You will be joining a crowd of professional traders who all utilize the bracket order on their trades.

Whether you are a scalper, day trader, swing trader or investor, you will benefit from the bracket order.

That’s it for today, good luck and good trading.

 

If you want to join us in our live trading room, check out the Day Trader package here >

If you prefer to trade more passively, checkout our newsletter, trade ideas and live analysis in the Swing Trader package here >

 


The information contained in this post is solely for educational purposes, and does not constitute investment advice. The risk of trading in securities markets can be substantial. You should carefully consider if engaging in such activity is suitable to your own financial situation. TRADEPRO Academy is not responsible for any liabilities arising as a result of your market involvement or individual trade activities.