Brackets are one of those tools that every trader should know how to use, it is certainly not the only tool available but it does have some great benefits and also offers you the ability of setting and forgetting when day trading stocks.
With brackets, you can easily define your entry points and exit points, but most importantly, put a limit or make it harder to make emotional decisions.
This means that it not only helps you mitigate the risks of volatile markets (which is the case of crypto) but also reduces the risk of allowing your emotions to take part of the equation.
Due to its nature, executions are guaranteed. This does not mean that profit is guaranteed, but it can quickly give you an idea of what is going on and that the execution will actually happen regardless of whether you are or not in front of your computer.
Planning correctly is what will get you the most benefits and even if you constantly see losses you’ll be able to quickly identify where your strategy is failing and make the required adjustments based on that.
Bracket Trading Pros
1. You Can Set And Forget
One of the few day trading tools that allow you to trade without having to spend all day in front of your computer screen. Once you have a strategy, you set the order and can “forget about it” for the rest of the day
2. No Manual Intervention Needed
Other orders require you to manually cancel Stop Loss after a target is executed to prevent losing any profit you made. This is not the case here as the stop loss gets cancelled automatically when the target is executed.
3. Executions Are Guaranteed
Since orders are “bracketed”, when the price reaches the stop limit, stop loss or target it will execute requiring no further intervention. This does not guarantee profit but if done well, orders will execute according to your parameters.
4. Predictable Outcomes
Since you already set the Target, Stop Loss and Stop Limit the outcomes are easily predictable. If everything goes as planned, you know how much you’re going to earn. If, on the other hand, things go the other way, you know how much you’re going to lose.
5. Helps You Manage Risks
Due to its guaranteed execution and complete control of your profit and loss range, brackets do an amazing job reducing the risks of trading in a volatile market. You can also avoid slippage since entries are possible through limit orders.
6. Protects You From Glitches
Although not very common, brokerages can sometimes suffer from technical glitches. In case this happens, brackets can help you protect your trades and limit your losses, if any. Glitches are not all that common but it is always good to know that you are protected.
Bracket Trading Cons
As with every tool, brackets have their cons. However, it is important to keep in mind that these cons are more about limitations of the tool rather than potentially damaging features.
1. Limit Orders Are Not Possible During Exit
Since limit orders are not possible during an exit, slippages can occur from your assumption at the time of selling, thus creating a slight difference between what you planned for and what you actually get.
Slippages are not that huge but can have an impact on your operations. The best way to avoid this is by avoiding trading during some major events.
2. Entry Through Stop Loss Is Not Allowed
A Stop Loss will protect your investment in case everything goes downhill and the price goes higher than what you’re willing to pay. However, entries are not possible through Stop Loss which can be a turn off for some people.
3. It’s Hard To Modify After Placing
In a great majority of cases, modifying a bracket order after placing it can become a bit tough. This is an ambiguous characteristic for two reasons; It limits your ability of making a last-second emotional decision and it makes it hard to fix a mistake after you placed the order.
Therefore, it is safe to assume that the most important factor here is that you have to make sure that everything is correct before placing the order.
4. Cancelation Is Not Possible
This is probably the biggest con of bracket orders. Although brackets will give you a controlled range of the amount you’ll gain or lose there are instances in which a trader might want to cancel the order, maybe due to a mistake.
Modifying the orders after placing is hard, but cancelling the order after entering a position is simply not possible.
So, Is Bracket Trading Worth It?
Absolutely. Brackets are undoubtedly one of the best tools available for traders.
Just as other tools available they’re not perfect, but the pros greatly surpass the cons without a doubt. Besides that, adopting it and understanding it is easier for experienced traders as it is conformed by other types of commonly used orders such as stop loss and limit orders.
Whether this tool works extremely well for you or underperforms will ultimately depend on your understanding of the market and your ability to plan according to your goals. However, it’s availability will also depend on the platform. Some platforms like CoinFLEX (or their trading app, DRAGNFLEX) allow you to easily make use of it, while there are some other platforms that don’t even offer it.
Some traders never use brackets, others do not like them, but generally speaking, you’ll find that most traders agree that it is a most useful tool. And considering how volatile crypto markets can be, this is probably still the best way to gain some profit while protecting your investment while day trading.
In conclusion, bracket trading has far more benefits and advantages than disadvantages. Once you learn how to use brackets correctly you’ll start enjoying from it’s automation and will increase your efficiency as a trader.