Why Should One Incorporate OCO Order in Their Trading Strategy?

by Trailing Crypto cryptocurrency experts

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.

The best crypto trading platforms like TrailingCrypto allow their traders to place conditional orders or advanced orders to take advantage of the market trends and profit. Placing an OCO order is one of the best trading strategies for both beginners and experts. It eliminates the need of monitoring your trades all the time. Furthermore, the system will accept your conditions and execute as required finally while mitigating the risks and losses.

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Created on Apr 4th 2022 11:06. Viewed 215 times.

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