Why Should One Incorporate OCO Order in Their Trading Strategy?
Placing an order to trigger
at a certain price away from the current market could be the most convenient
way to trade any assets. It can help you to enforce discipline in your trading
and also save you from watching the volatile market trends continuously. While
this could be a convenient option with using simple orders to trade, there are
advanced orders available which can be used for planning ahead your trades.
And, knowing what risk management tools to implement, or when, is the key
essence of managing your crypto trading portfolio.
The most popular crypto
trading platforms like Binance offer both basic and advanced order types to the
traders. Let’s have a look at the most popular one:
OCO
Order
Do you really wish to use
the best risk management tool which could help you manage your exit strategies?
If yes, then you should go ahead with the most advanced order known as OCO
(One-Cancels-the-Other) order. This order type combines two market orders where
if one order is fully or partially filled, the other one will be canceled
automatically.
Suppose, the
current market price of any crypto asset say XYZ is $100. Now, you can
place an OCO
order with Taking Profit at $120 and Stop Loss at $80.
If
the market goes perfectly well and hits $120 then, the Take Profit option will
be executed. But at the same time, the Stop Loss order will be cancelled
automatically. Imagine if the market doesn’t go well, and the price hits $80,
then a stop loss order will be executed and at the same time take profit order
will be cancelled out.
This
was a basic example of an OCO order. Let’s understand this order type in deep.
Why
does this order type matter?
In any kind of trading, the
traders always seek to capitalize on the market and rear profits. And, this is
the reason why they implement multiple strategies in order to make sure that
the risks are mitigated. When it comes to placing an OCO order, the trader can
take quick action on any trade while taking advantage of the increased price
movements.
Let’s understand how?
In this order type, you have
the ability of placing two orders simultaneously which increases the
probability of profits. If one of the orders is not intended, the other one
will be canceled instead of being placed in a short position.
Explanation:
OCO Order
The pair of orders placed in
the OCO order type is linked together with a kind of order management and this
order management ensures that only one of the two orders is executed. This is
the best risk management tool ensuring that traders minimize negative exposure
to the market, while enhancing their profitability potential simultaneously.
A set of two instructions is
given to fill the OCO order which involves the price (better off) you want or
once it reaches a certain target (worst off) price. Whenever the limit order is
triggered, the stop limit order is canceled automatically, and if the stop
price is reached, the stop limit order will be triggered, and the limit order
will be cancelled.
There are two main purposes
of OCO Orders which involve:
- Managing the trade risk in an open position
- Entering either long or short trade following
the breakout
Let’s understand this with
an example:
Let’ say, a trader holds a
stock ABC currently trading at $25 per coin. He believes that this
cryptocurrency is devalued, and expects the price to reach $45. To make sure he
locks in the gains, he places a sell limit order for $45, the maximum price at
which he wants to hold the asset. He also places a trailing stop order at $10
which will sell the stock if the price drops to $10 from its current high. As
the price reaches to $45, the trader’s sell limit order is triggered, and it
will sell the assets while cancelling the trailing stop order.
So, an OCO order allows you
to place even complex orders like Trailing limit sell, Trailing stop, and more.
This order type allows its traders to trade in the more efficient and secure
way while providing more versatility as you may enter or exit positions while
having to choose between a bullish ora bearish market.
How
to place an OCO order?
The first step of an OCO
order begins with a primary order like Take Profit order. As the investor, you
have to head over to your crypto trading platform and input the detailed order
information. Once you are done, select OCO order from the available order types
options under advanced or conditional order.
Now place a secondary order.
You can add conditions for the secondary order like Trailing Limit Sell or
Trailing stop and click preview order.
Once you are done, a preview
will be available. If you agree, click on confirm and let the system work for
you.
Key
benefits of OCO order
OCO orders are quite
beneficial for those who don’t have time to watch the charts constantly, and
reacting to the market as the price action unfolds.
One of the best ways to use
OCO orders is to use the resistance and support levels.
If there is a very powerful
and strong downward trend in the market, and you think that the price of the
asset will move down, you could place a buy order just below the support level
and another buy order above the support level with an OCO order when there is a
short position.
One could use an OCO order
so that your response to a certain price is pre-determined. This allows traders
to take the advantage of market trends and opportunities automatically.
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