If you suffer from decision fatigue with your investments, a bracket order can give you a break because it allows investors to simultaneously hold two orders to sell a single security. One order to sell if it decreases, the other to sell if it goes up. A bracket order essentially allows you exit from a given investment to be automated from the start.
Each bracket order will have a profit scenario and a loss scenario.
Profit: A limit order is used if the security becomes more valuable.
Loss: A stop order is used to cut losses on a security losing money.
In the event one of these orders gets executed, the other one will immediately cancel.
By placing a bracket order, investors can remove their emotions from the decision making process because the rules for exiting the position are all set up in advance. By having a bracket order set, they do not need to monitor the trade as actively since their two orders will be monitoring it for them. It’s a form of analog automation in a highly digital space.
Order duration
When placing a bracket order, a duration must be selected for each of the orders. This is how long the orders will wait for the price to reach them. They can be the same duration or different. Most brokerages offer Day and Good ‘til Cancelled (GTC) durations.
Summary
A bracket order is an effective way to automate how to exit a position. It is setting up two separate orders to ensure a position is closed if the security price increases or decreases to a set amount. A limit order will capture the profit if the security moves favourably. A stop order will cut ties with a security that is losing money.
