Bracketed Sell Order Definition & Trading Example
Bracketed Sell Order Definition
A bracketed sell order is when three orders are placed simultaneously in order to take on a short position. There are three components of a bracketed sell order:
- Initial Short Position
- Limit Buy to Cover Order
- Stop Market Loss Order
Why Use A Bracketed Sell Order
Traders like this trading style, because the investor knows exactly where they are looking to lock in profits as well as protect against losses. Thus removing a lot of the guess work and uncertainty associated with trading. This way if the market has an unexpected short squeeze, the trader will be able to close out their short position without incurring a disastrous loss.
Bracketed Sell Order Trading Example
In the below trading example a trader entered a bracketed sell order at $5.28 for Motorola. The trader then places a buy to cover limit order at $4.25 near the October 10th low. Conversely the trader places a stop market loss order above the $6.25 resistance level.