Stock Market Order using a Conditional Bracket OCO (One Cancels the Other) in Thinkorswim
Money Management
Using money management techniques with a stock market order is vital to help minimize potential losses when trading. It is always recommended to use stop-loss orders in conjunction with buy orders to automate the exit of a trade position in the event the stock price goes lower than its risk estimate. In addition, it is a good idea to place a sell limit order to automate take-what-you-can-get profits from the market. The Thinkorswim trading platform has this capability included and can be customized to meet several different money management strategies.
Conditional Order
A conditional order is fairly straight-forward in its use. It is an order that sits and waits for the price of a stock to reach a specific value (or range) before it is triggered and executed in the live market.
Bracket Order
A bracket order is an order that is directly connected to another order, typically where one cancels the other if either of them are triggered. They are normally setup as one sell-limit order (profit), and one stop-loss order (loss), connected in a bracket where if one is triggered, the other is cancelled.
Combining the Conditional & Bracket Orders
To start, we will look at a single conditional OCO bracket order in the platform. Using the "Charts" or "Active Trader" section within Thinkorswim, place the mouse cursor at the price you are planning to enter the stock and right click on the mouse. On this pull-down menu, hover over the "Buy custom" option, and select "with OCO bracket" to which will open an order entry screen at the bottom of the window. Your actual menu pull-down may look different, as I have several custom OCO order types that I use and have saved for quick access that show in this pull-down example.
The order entry screen at the bottom of the window will have three stock market orders ready to be completed with the price values for the trade to be executed. These three orders are the "BUY" order, the "SELL LIMIT" order, and the "SELL STOP" order. The BUY order is the price you want the stock to reach to execute the trade.
Once the price of the stock is met (the condition or trigger), the other two orders (SELL STOP and SELL LIMIT) will become live orders. The SELL LIMIT is the price that you want to take profits at. Once the price hits this profit point, the shares will be sold and the stop-loss order will be cancelled.
The SELL STOP price is the stop-loss to exit the trade at a loss, to prevent losing more than the risk estimate for the stock. If the price of the stock reaches this stop-loss value, the shares will be sold at a loss and the SELL LIMIT order will be cancelled.
When creating a new order, the platform defaults the price values in the SELL LIMIT field to the BUY price plus $1.00, and the SELL STOP field to minus $1.00 from the BUY order price.
The key take-away here is that once the trigger condition to buy the stock is met, one order to take profits, and one order prevent too much loss are created, where if either are triggered, the other is cancelled (OCO - One Cancels the Other).
The Order Entry Screen:
Stock Order Entry Screen Columns
The order entry screen provides several rows and columns to fine tune a trade. Each row is color coded where green is BUY, and red is SELL. The columns we are interested in for creating this example single OCO stock trade are:
Qty: The number of shares to buy or sell
Price: The price values for each buy or sell order
Order: LIMIT, SELL STOP LIMIT, and SELL STP/STD
TIF: Time in force DAY or Good Till Cancelled (GTC)
Creating a Stock Trade in the Order Entry Screen
- Enter the quantity of shares you want to purchase in the "Qty" column. Make sure that the same numeric quantity is in all three of the buy and sell rows. With a positive number for the BUY order, and negative values for the SELL orders.
- Set the price you want to enter the trade at in the green BUY (LMT) order row.
- Set the price you want to sell for a profit in the red SELL LIMIT (LMT) order row.
- Set the price you want to set at your stop-loss in the red SELL STOP (STP/STD) order row.
- Click on the "Confirm and Send" button to place the order.
If you do not want to place the order, click on the "Delete" button next to the confirmation button. This will remove the order from the system. If you do not delete the order, it will remain in the platform until you do.
There are several customizations that can be created from this single OCO order template that are not discussed in this post, such as adding additional SELL LIMIT and SELL STOP orders with quantity adjustments, changing the price entry from direct values to relative values or percentages, and/or using a price range based BUY STOP LIMIT order to initially trigger the trade.
I hope this helps you in getting started with using conditional OCO bracket orders with your trading.
