Lock in your Gains and Limit Your Risks Using OCO Orders

Crypto trading market is extremely attractive among the novice and expert traders due to its strong trends and volatility. Increased volatility means increased risk, and managing this risk by incorporating some effective strategies is something that allows expert traders to earn good profits. Conditional orders are the best tools used by expert traders. These orders are used to place trades which will be submitted or canceled if and when a certain criterion is met. This order type is beneficial to automate part or all of the trade order process.

What is a conditional order?

These are the advanced orders which are canceled or submitted automatically. These orders are required to be placed before the trade is entered. Traders often use these orders for stop loss, Trailing stop loss, stop sell, and many other breakout strategies. The two most common conditional orders used by the traders in crypto sphere are OCO (One-Cancels-the-Other) order, and OSO (Order-sends-Order) orders. These orders help traders to manage their risks, lock-in profits, and entry or exit positions easily.

Here we will discuss about OCO order and how these work?

Want to know how to include such orders in your trading strategy? Let’s have a look:

OCO Order

This order type allows the traders to place multiple orders simultaneously where if one order is fulfilled, the other one will be canceled automatically. This order type is beneficial for both entry and exit.

There are three general scenarios when a trader can utilize an OCO order:

·         Managing risks in open positions

·         Trading whenever breakouts occur

·         Deciding between buying two different cryptocurrencies

In this order, the trader places two orders at the same time. Usually, this order type combines a limit order and a stop-limit order. But only one order is executed if certain conditions are met, and the other order will be canceled automatically. Traders can use these orders to trade retracements and breakouts.

The stop order is placed at a specific price below the current market, such that if that price is triggered, this order will be converted into a market order. On the other side, a limit order which is also placed at a specific price, has a better price location than the current market price.

The grouping of these orders is conditional which means that they cannot be executed at the same time. One of the orders will cancel, if and when the other order executes.

For example, if a trader owns the coins of any cryptocurrency say, ABC, currently trading for $2500 per coin. He believes that the coins are undervalued, and expects their price to reach another $2000. To make sure he locks in the gains, the trader places a sell limit order for $3000, the maximum price at which he wishes to hold the crypto coins. He also places a trailing stop order for $1000, which will sell the crypto assets if it drops $1000 from its current high. As the prices climb to $3000, the trader's sell limit order is triggered, selling his coins, and cancelling his trailing stop.

This way an OCO order works.

How are the OCO orders used?

Usually, traders use OCO order to trade breakouts and retracements. This is because the limit order is used in reversal trading strategies, while the stop order is used for the breakout trading strategies. If you want to trade breakouts, considering OCO order is a better option.

Let’s understand this with an example:

Suppose the price breaks above the resistance level or below the support level. Here the trader can either place a sell stop or the buy stop order at an appropriate price level to exit or enter the trade. On the other side, those trading retracements tend to buy whenever the price drops and touches the support level. And, it will sell when the price rises but it bounces back at the resistance level. In all such cases, the traders can go with an OCO order.

Let’s consider one more example to understand OCO order:

How to trade breakout above the resistance level:

Suppose a particular crypto asset’s price lies between 2 BTC and 4 BTC. A trader can place an OCO order with a buy-stop slightly above 4 BTC and a sell limit at 4 BTC if they think that price will increase.

To be more specific, the trader can set the stop price at 4.5 BTC and stop-limit order’s limit price at 5 BTC. When the price breaks above the resistance level, the stop-limit order will be executed, and the limit order will be canceled.

OCO buy orders involve buy-stop and buy limit orders while the OCO sell orders include sell stop and sell-limit orders.

Usually, the traders use OCO orders, whenever the market is highly volatile. And, the most popular crypto trading platforms or exchanges allow traders to trade smartly by making use of the best crypto trading bot.

Conclusion

Trading with OCO order helps both the novice and professional traders effectively in all ways. Rather than watching each trend of the market, it’s better to use OCO orders as they can manage the risks using automation. Making use of the best crypto trading bot allows traders to place a trade successfully and automatically. OCO orders are also referred to as bracket orders and these orders are best for reducing the risks and locking in the profits for entry and exit positions.