Friday, 2 June 2017

Bracket Order - Very Useful in Day Trading

Bracket order is the kind of order placement utility which allows us to enter into the trade with predefined stop loss or trailing stop loss and target price.  You can read more about it and how it works by clicking here.

Many a times bracket order becomes quite useful when the volatility is very high and we need to enter and exit quickly. Also it allows us to trail stop loss and help manage the trade better.  No need to say that it also requires us to keep very little margin, as low as Rs. 11K, as our risk is managed.

In stock trading where the price movements are very quick and sharp, I would always like to block my profit whenever I am in the profit.  To play safe I feel it is better to trail stop loss at every Rs. 1000 profit in stock trading.  If I enter into a trade at 408 and its lot size is 1000 and stop loss is 406 then if price moves in my favor lets say till 409, I would trail stop loss to 407 from 406.  At around Rs. 2500 of profit, I would also like to shift stop loss to close to entry point because if prices reverse from there I can close that trade with no profit, no loss.  All the management of trade like this becomes much easy with Bracket orders.

Here is an example of Axisbank bracket order placement.


I will place the order as shown like this. Rs. 2 stop loss, double target and half of the value of stop loss in trailing stop loss.  This order will automatically trail my stop loss at every 1 Rupee move in my favor till the target is achieved.  I will remain tension free without worrying about price fluctuation.  I also don't need to worry in middle of the trade about what will happen if my PC breaks down, what will happen if my broker does not pick up the phone to square off my order, what will happen if there is no internet connectivity, etc etc.

If the Bracket order is not there, I will require to keep observing the prices and frequently modify the SL orders and also keep separate target order.  Also taking multiple trades at the same time and keeping the focus on trade management will become a big issue without the Bracket order.

So all in all, Bracket orders are made for the intraday traders like us who like to trade in high risk instruments like futures and options but still want to control the risk and manage the trade better.

6 comments:

  1. Only disadvantage is there s no option for trigger or market order with BO order, at least in zerodha.

    Also BO order allows trader to trade 10 lots nifty with just 1lakh .. which is 72x leverage.. too big to handle..

    ReplyDelete
    Replies
    1. Rose

      Bracket orders are like that everywhere. It allows only limit order. Considering its other advantages, we can find the work around for placing limit orders. That is not an issue.

      How much leverage we need to take is up to us. How much to trade is also up to us. Nobody forces us.

      URD

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    2. URD,

      What is the workaround you are talking.. can you please elaborate?

      Delete
  2. You need to watch the prices closely and place your limit order immediately once your desired level is crossed. Another way is define your price range within which you will be comfortable. E.g. If you want to enter at 500, and your range is like 499.80 to 500.20, you place your order once the price hits 499.8 with limit price 500.20. It will get executed better than 500.2 or at 500.2.

    Hope this helps.
    URD

    ReplyDelete
    Replies
    1. URD,

      Your first approach I understood.. but regarding second, if I am not wrong entry price we are looking is once price hits 500, in that case if I place limit order at 500.20 once 499.80 flashes on my scrren..it is possible that price may just tick around 499.85-95 and reverses.. however order gets executed.. how does this help? As intention is to enter position once price hits 500.

      Delete
    2. It is simple. In that case, you can use the price range like 500 to 500.40 or 500.30 or whatever range you are comfortable with depending on your trade. I feel still it is better than entering with market orders where we will never know what price we will ultimately get.
      URD

      Delete