Dec 28, 20205 min read

Forex and Futures trading - Order Types. OCO Order.

Updated: Dec 29, 2020

Are you familiar with OCO orders? We know this order type as One-Cancels-Other order. A common OCO order is your stop-loss and take-profit order pair. Executing one of the two in the ordered pair will cancel the other. If stop-loss is executed, it will cancel take-profit, and if take-profit is executed, it will cancel stop-loss.

OCO is paired or linked order. In the stop-loss and take-profit pair example, the stop-loss stop order is linked to take-profit limit order. You can place the two orders one after the other and link them together to form an OCO order. If the trade is stopped out, then the paired order, take-profit, will be cancelled; similarly, if the trade exited on profit, then the stop-loss order will be cancelled.

OCO Order

Linked conditional orders. Executing one will cancel all the other linked orders. OCO can link two or multiple orders.

See below an OCO order ticket for AUDUSD. We have a buy-limit order and a buy-stop order. The market price for AUDISD is 0.71235. The buy-limit order is placed below the market at 0.71101. The buy-stop order is placed above the market at 0.71300. The two are linked to form an OCO order pair.

If the market continues its uptrend move, then the buy-stop order will execute. The position will fill at the buy-stop price of 0.71300. The OCO paired buy-limit order will be cancelled. On the other hand, if the market took a pullback, then the buy-limit order will execute. You will get in on the trade at the pull back at the buy-limit price of 0.71101. This gives you a favorable entry price for the long position. The buy-stop will be cancelled.

Use OCO to craft your entry orders. It will help you maximize gains and help you to not miss out on any good trading opportunity.

OCO for Retracements

OCO order will help you craft and execute a trading strategy for retracements (pullbacks). You are certain of the direction of the market, but you are unsure if there will be a pullback. Wait for a pullback, you might miss out on a good trading opportunity. Place two orders; one for the pullback and one for the trend move without a pullback. Link the two orders into an OCO and you have a risk-free strategy for pullbacks.

There are two buy orders in the AUDUSD chart; a buy-stop and a buy-limit order. As the market continues moving up, it may take a pullback before making its next high. Using a buy-limit OCO order, you cover the entry points in case of a pullback. If a pullback happens, you will enter the trade using the buy-limit order. If a pullback does not materialize, then the buy-stop will get you into the trade. Using OCO, you can manage the entry points to your advantage and you won't miss out on good trading opportunities.

You could ask why I need to take the extra effort to create an OCO. Why can't I take a market position as soon as I notice the market trend? The question is valid and can come up in your analysis. The answer is if you do not plan your entry points to better manage risks and profits, you will miss out on gains. OCO can help you manage your entry points. You and I cannot predict a pullback. A pullback may happen, or it may not happen. The signals tell you that the market is in a trend. OCO reduces risk and gives you a backup plan to enter the trade. Managing entry and exit points into and out of trades determine your profit. Use OCO to strategically manage your entry into winning trades.

As you can see from above, the OCO entry worked. The market pulled back; buy-limit was triggered and buy-stop was cancelled. Trade entry using buy-limit is favorable during pullbacks. if you neglect the trading plan and the extra effort for OCO and enter the trade using a market order, you will lose valuable points in a pullback, and the pullback might stop you out of the trade making a good trading opportunity a losing one. OCO gives you a backup plan if the pullback didn't happen or if you miss the entry at the pullback. The buy-stop order will get you into the trade, and you will still ride the market trend and profit from it. OCO helps you strategize entry positions with a backup plan. If the primary entry plan did not work, the buy-stop order will be your backup plan for entry. OCO will cancel the other linked orders so you will not have any open orders or unplanned positions. You don't have to worry or remember to cancel your stop and limit orders. The OCO order reduces risk and improves the trading plan.

OCO for Breakouts

The market is in a range. It might break the resistance or support levels. This is a perfect opportunity for breakout trading. How will you place your trades if you are unsure of the direction of the breakout? OCO can help trade in such situations. You can place a buy-stop order above the resistance and a sell-stop order below the support and link the two into an OCO. As the market moves out of its range and moves into an uptrend or a downtrend, your OCO buy-stop or the sell-stop will get executed, and the other stop order will be cancelled.

See below the order ticket for USDJPY. The two orders are for trading breakout. The market is in a range. The buy-stop is for uptrend breakout and the sell-top order is for downtrend breakout.

The market price for USDJPY is 103.585. The sell-stop order is placed below the support at 102.823, and the buy-stop is placed above the resistance at 104.000. if an uptrend breakout happens, then the buy-stop will execute and the linked sell-stop will be cancelled. If the downtrend breakout happens, then the sell-stop will execute, and the linked buy-stop will be cancelled.

See below the OCO order in the USDJPY chart. As the market moves from range to trend trading, it will breakout into a downtrend or to an uptrend. With OCO, you will be ready with the right order pair to take advantage of the breakout.