OCO Bracket Orders Explained: A Way to Manage Multiple Trading Orders

Managing multiple trades at once can be tricky. That’s where an OCO bracket comes in. But what is OCO in trading, and how does it work? This article breaks down the OCO bracket order, explaining how traders use it to control risk, automate decisions, and simplify strategies like breakouts and retracements.

Key takeaways

• An OCO order links two orders, ensuring that if one executes, the other is automatically canceled.
• Traders use OCO orders to manage risk, automate trading, and avoid unintended trades. OCO orders are useful for both breakout and retracement strategies.
• This order type prevents the risk of forgetting to cancel an order manually.

How OCO Orders Work

An OCO bracket links two conditional orders—one stop order and one limit order. If one order is executed, the other is automatically canceled, making the process efficient and lowering trading risks. Here’s how it works on a trading platform:

• You set up an OCO bracket order with two opposing actions. For example, one might be a sell limit order and the other a stop-loss.
• When one of these orders is filled, the trading platform cancels the remaining one instantly.

Breakout Strategy Example

Here’s how you can implement a breakout strategy step-by-step:

• Place a buy stop order above a resistance level.
• Add a sell stop order below the support level.
• If the price breaks resistance, the buy stop is triggered, and the sell stop is canceled automatically.

As a note, consider that some platforms require separate OCO orders for long and short trades. If both orders belong to the same OCO setup, a triggered buy stop cancels the sell stop, preventing a short entry. However, some platforms treat these as two separate entries (which may not always be the desired outcome).

Retracement Strategy Example

Here’s how you can implement a simple retracement strategy:

• Place a buy limit order at a support level.
• Add a sell limit order at a resistance level.
• If the price hits resistance, the sell limit executes, and the buy limit is canceled.

This setup assumes you are looking to take profits in both directions, which is more common for range-bound trading rather than standard OCO use cases. Many traders use a stop-loss + take-profit setup instead of two limit orders.

OCO in trading helps traders automate their strategies while keeping risks in check. Whether you’re aiming for breakouts or retracements, this functionality adds flexibility and precision to your trades.

A Classic Example of an OCO Order

Suppose an investor holds 10 call options (as you may find on our options screener) for a volatile stock with a strike price of $20, and the underlying stock is currently trading at $20 (so, we're talking about ATM options). To manage their position efficiently, they use an OCO bracket order.

A trader may set a sell limit at $6 per contract and a stop-loss at $2 per contract. If the stop-loss is a market order, execution is guaranteed but may experience slippage. Here’s how it works:

• If the option premium rises to $6, the sell limit executes, locking in the profit, and the stop-loss order is automatically canceled.
• If the option premium falls to $2 instead, the stop-loss executes, protecting the investor from further losses, while the sell limit order is canceled.

By using this OCO bracket, the investor avoids the risk of accidentally leaving a stop-loss order active, which could lead to unwanted trades or unnecessary exposure. This setup simplifies the process of managing both risk and reward when trading options.