How to Day Trade with Bracket Orders – Video Example

Overview of Bracket Orders

Bracket orders are an order execution type that allows you to place an entry, stop and target all at once. [1] It sounds more complicated, but it's not all that involved. Once your entry order is filled, the stop and profit target orders are immediately placed as well.

Entering a Bracket Order

Below is an image from Tradingsim for a bracket order.

bracket order values

bracket order values

Entry

The entry price is just that, where you want to get into the trade. Now, this will come down to your specific system or strategy.

Profit

The profit is the price where you will exit the position. In the above example, we used 45 as our price target for Uber.

Stop

In this example, we are using 43 as our stop price for exiting the position. This is where we will concede that we got it wrong and need to protect our capital.

How Can Bracket Orders Help You?

As a trader, you have to get so many things right for your trading career to really take off.

You need to have a strategy that gives you an edge. You then need sound money management techniques to ensure you do not blow up your account. Lastly, mental toughness and discipline are a must if you want to stay in the game for any length of time.

Get just one of these items wrong and you will have a problem.

To Make Money

You are not trading to be the best technical analysts or to brag to your friends over dinner. You are trading to make money. In order to make money trading, you must know three things before entering any trade.

You must know where you want to enter the trade, where to stop out the trade and where to take profits. The keyword out of the three is profits! How do you ever make money in the market if you do not have a number of when to exit the trade?

Discipline

Believe it or not, many traders do not have these levels identified before they enter a trade and it's a quick way to end your trading career. [2] The problem with "feeling" your way through it is that when you get it wrong it can lead to some serious consequences.

The entry is the one thing most people get right, but factoring in the risk of the trade is just an afterthought. This is where bracket orders can play a tremendous role in helping improve your trading results.

The structure of the order itself forces you to think in these terms.

Bracket Orders on the Long Side

For long trades, you want to place your stop below your entry and your profit target above your entry. Determining the right entry will come down to your strategy or setup.

In the below image we are combining a bull flag after an opening range breakout, 10-period SMA and pivot points.

The break of the opening range high is our entry. Our stop is either a close below the 10-period SMA or a close below the breakout candle and our target is the next pivot point resistance level.

Long Bracket Order Trade Setup

Bracket Order Setup

Bracket Order Setup

In this trade setup, the flag is not a beautiful one which is why I selected it. As you can see in the setup, after the spike, PCG begins to coil around the 10-period SMA.

We place our buy order above the high of the day and our stop below the breakout candle. The target is then set at the next pivot point level up at $20.73.

The one additional point is you need to ensure you are placing your stop order below the 10-period SMA to follow the stock higher.

Short Bracket Order Trade Setup

Short Bracket Order

Short Bracket Order

Similar to the long setup, you use the same levels but on the downside.

In the chart above of MLNT, we wait for a break of the morning range low after the bear flag. We then ride the moving average down to the next pivot point level.

Again, you use the 10-period SMA to follow the price action down to your target.

Video - Bracket Order

How Can Tradingsim Help?

If you are having trouble sticking to sound money management and trade execution techniques then bracket orders could be something worth trying out.

Within Tradingsim you can practice trading this strategy and others with over 11,000 symbols for the last two years using real tick data.

External References

  1. Order (exchange). Wikipedia
  2. Daly, Shane. Does Risk Management Really Matter When Trading?. Netpicks.com

Al Hill Administrator
Co-Founder Tradingsim
Al Hill is one of the co-founders of Tradingsim. He has over 18 years of day trading experience in both the U.S. and Nikkei markets. On a daily basis Al applies his deep skills in systems integration and design strategy to develop features to help retail traders become profitable. When Al is not working on Tradingsim, he can be found spending time with family and friends.
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