A strategic framework can help you tackle volatility while trading stocks online, starting with identifying the right support and resistance to placing Bracket Orders.
What is Bracket Order?
A bracket order is a type of order that combines an entry, target, and stop loss to maximize potential profit and minimize loss. The entry leg is the price at which you want to enter the position.
You’ll have a profit percentage in mind, which is the target leg while your maximum pre-defined loss is managed with the stop loss leg.
You’d be interested in knowing that the stop loss trigger is placed as a stop loss Limit Order because exchanges don’t allow a stop loss as a Market Order.
Manually entering positions and exiting them while keeping constant tabs on just a single position can be a challenge. Using bracket orders can help you save time as you’re placing three orders in one.
This can get even better if your trading system is bulletproof as every part of the trade is pre-defined.
Benefits of Using Bracket Orders
When it comes to online trading in the share market, bracket orders offer a range of advantages.:
1. Risk Management
You can use bracket order to pre-define stop-loss levels. The system will automatically trigger an exit if the prices reach the stop-loss level. This feature allows you to effectively limit any possible losses.
If you are unable to closely watch the market during the trading window, then bracket orders are the best option for you. You can streamline the trades by automating the initial order, the target order, and the stop-loss order.
3. Encourages Discipline
Bracket trading ushers in a discipline in your trading strategy. Adherence to predefined stop-loss levels and profit targets prevents you from making any impulsive sell-or-buy decisions.
4. Profit Optimization
When the desired profit level is reached, bracket orders ensure the automatic execution of the trade. This feature allows you to book the profits and avoid any chances of emotional decision-making.
Steps to Place Bracket Orders on Dhan
Dhan is a popular online stock trading and investment platform in India. Here are the steps for how to place bracket order on Dhan:
- Log in to your Dhan app and select the stock you want to trade.
- Navigate to the order placement section and select the bracket order option.
- Now, you need to mention the entry price, i.e., the price at which you wish to enter the trade. Also, specify the number of shares you wish to trade.
- You must also specify the profit target and stop loss levels for your trade.
- Verify all the details entered again as the specified actions will be automatically triggered once the price reaches the given level.
- Once you confirm the order, i.e., the entry leg has been created, the system will create the target leg and the stop loss leg.
- It is recommended that you keep a significant difference between the limit price and the trigger price so that the order is executed when it is triggered.
If you are exiting a bracket order, ensure that you confirm the status of the pending legs.
Mistakes to Avoid When Placing Bracket Orders
Now that you know how to place bracket order on Dhan, here are some of the common mistakes that you must avoid when placing bracket orders:
- Incorrect Price Levels: You should be careful while setting the target price and stop loss levels. If you make any error while setting these levels, it can lead to losses.
- Ignoring Risk Management: Do your research before setting the stop-loss levels, otherwise, it can expose you to considerable risks. Risk management is crucial to minimizing losses while trading.
- Neglecting Market Conditions: You must not ignore the market conditions while setting bracket orders. Your strategy should factor in any events or news related to the stock you are investing in.
Bracket orders offer you a great opportunity to enhance the efficiency of your trading strategy. They enable traders to set up a three-component structure with a single order.
These components are the original buying or selling order, an upper target price, and the stop-loss limit.
While understanding what is a bracket order is just part one, part two involves specifying profit targets and stop loss levels to ensure optimal risk management.
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