A:

Once you've identified a security that you want to purchase, you need to determine a price at which you want to sell if the price heads in an adverse direction and a price at which you want to take profits when the price moves in your favor. In many cases, this data is relayed to the broker using three separate orders.

First, you will buy a security using either a market or a limit order. Then, you will enter a stop-loss order, which tells your broker that you do not wish to hold the asset when the price moves beyond a certain level. If you have a target price in mind, you will then enter another order telling your broker when you wish to take your profits. That's a lot of orders! Many brokers have started using a special type of order that simplifies this process by allowing the trader to enter all the data contained in the above orders using only one transaction. This order is generally known as a bracket order, but some brokers may use different terminology.

A bracket order can be found in one of the following formats:

A bracketed buy order enables you to attach a stop-loss below the entry price, and a sell limit order above the entry at the price where you wish to take profits. This is the type of order you would use if you found yourself in a situation where you wanted to buy a stock at $30, sell it when it reached $35, but didn't wish to hold the stock if it fell below $27.

A bracketed sell order allows you to attach a stop-loss above the entry of a short position and a limit order below the entry price where you wish to take profits. If you believed that the price of the $30 stock mentioned above was going to go down, you would attach a bracketed sell order to protect your position.

To learn more about different types of orders, see The Basics of Order Entry.

RELATED FAQS
  1. Tame Panic Selling with the Exhausted Selling Model

    The exhausted selling model is a pricing strategy used to identify and trade based off of the price floor of a security. ... Read Full Answer >>
  2. Point and Figure Charting Using Count Analysis

    Count analysis is a means of interpreting point and figure charts to measure vertical price movements. Technical analysts ... Read Full Answer >>
  3. What assumptions are made when conducting a t-test?

    The common assumptions made when doing a t-test include those regarding the scale of measurement, random sampling, normality ... Read Full Answer >>
  4. How do I place an order to buy or sell shares?

    It is easy to get started buying and selling stocks, especially with the advancements in online trading since the turn of ... Read Full Answer >>
  5. How are double exponential moving averages applied in technical analysis?

    Double exponential moving averages (DEMAS) are commonly used in technical analysis like any other moving average indicator ... Read Full Answer >>
  6. How do I set a strike price in foreign exchange trading?

    In trading with a foreign exchange, a trader can set a strike price for a currency pair by entering a limit order or a stop ... Read Full Answer >>
Related Articles
  1. Investing

    Redefining the Stop-Loss

    Using Stop-losses for trading doesn’t mean ‘losing money’, but instead think about the money you'll start saving once you learn how they work.
  2. Chart Advisor

    3 Ways to Trade the Rising Volatility

    With volatility increasing in the markets, many are turning to these three volatility-capturing exchange-traded products.
  3. Trading Strategies

    Stock Trading for Free: Now a Reality

    Believe it or not, you can now trade stocks and ETFs for free. Here's a look at providers offering commission-free trading.
  4. Chart Advisor

    Big Double Top Patterns On the Verge of Breaking

    These stocks have created big double top chart patterns, and are on the verge of breaking the patterns to the downside--a bearish signal.
  5. Chart Advisor

    Gold Struggles to Climb Higher and May Fall Soon

    Traders will be watching the price of gold over the coming weeks. We'll take a look at how a couple major moving averages are suggesting that the next move could be lower.
  6. Technical Indicators

    Use Market Volume Data to Determine a Bottom

    Market bottoms often carve out classic volume patterns that let observant traders make fast and accurate calls.
  7. Charts & Patterns

    Understand How Square Works before the IPO

    Square is reported to have filed for an IPO. For interested investors wondering how the company makes money, Investopedia takes a look at its business.
  8. Trading Strategies

    The Top Spread-Betting Strategies

    What are the most commonly followed spread-betting strategies (in countries where it's legal)?
  9. Trading Strategies

    Who Actually Trades or Invests In Penny Stocks?

    Although penny stocks are highly speculative, millions of people trade them daily. Here are 10 different types who do.
  10. Chart Advisor

    4 Stocks Still Flashing Buy Signals

    In the midst of volatility and a big market sell-off last week, these stocks are flashing buy signals.
RELATED TERMS
  1. At The Lowest Possible Price

    A type of security trading designation that instructs a brokerage ...
  2. At The Highest Possible Price

    A type of security trading designation that instructs a brokerage ...
  3. Fintech

    Fintech is a portmanteau of financial technology that describes ...
  4. Indicator

    Indicators are statistics used to measure current conditions ...
  5. Intraday Momentum Index (IMI)

    A technical indicator that combines aspects of candlestick analysis ...
  6. Forex Spread Betting

    A category of spread betting that involves taking a bet on the ...

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!