Forex OCO Orders Trading Explained
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Leaving an order to deal at a certain price away from the current level of the market can be a convenient way to trade Forex. It can help to enforce discipline in your trading, as well as saving you the trouble of monitoring the market as you wait for the right price.
While you may already be conversant with using simple orders to trade, you might also be interested in what is known as the One-Cancels-Other order (or OCO order). An OCO order is a slightly more advanced type of order. This article is going to explain how they work and explore what kind of scenarios they are suited to. If you do want to brush up on basic orders first, take a look at our Stop-loss And Take-profit article.
What is An OCO Order?
An OCO order is, in fact, a pair of orders that are linked together with a kind of order management. This order management ensures that only one of the orders is ever executed. As the name suggests, if either of the two orders are executed, it automatically cancels the remaining order.
This differs from plain vanilla stop or limit orders, which are discrete instructions to buy or sell on the market if certain price conditions are met. Such orders are not linked to the outcome of any other order, and continue to operate until executed, cancelled, or until the expiry (such as a day order). OCO orders are useful because they can help 'clean up' orders that are no longer wanted.
OCO Orders in MetaTrader 4
OCO orders are not included in MT4 as a default. If you would like to use them, you need to download an Expert Advisor (EA), in order to add the functionality to the platform. An EA is an automated process that allows you to place trades according to specific rules. If you perform a web search for OCO orders, you will find that there is a dearth of highly recommended EAs out there for this purpose.
Professional traders may prefer to have functionality like this come from a reliable source, which is why the MetaTrader Supreme Edition plugin for MetaTrader 4 and MetaTrader 5 is so handy. MTSE is a free, custom plugin that offers a wide selection of EAs and trading indicators, all of which have been handpicked and crafted by industry professionals. This means that you can rely on them to work in an expert fashion.
Among the EAs provided with MTSE are OCO orders. Access to the OCO functionality in MTSE is provided via the mini terminal, a special feature that makes opening and managing positions easier. The mini terminal includes order templates that make it simple to place a wider variety of orders, including OCO orders.
Placing Forex OCO Orders With MT4SE
The first thing you need to do is install MetaTrader 4 Special Edition. Once you have done that, you will be able to see all the additional indicators and EAs available in MT4's Navigator. From these, you just need to select Admiral - Mini Terminal, as shown in the image below:
Source: MetaTrader 4 Supreme Edition - Placing orders with a mini terminal
To open the menu for placing orders, click on the orange icon in the top right hand corner of the mini terminal. Ensure the 'Allow' automated trading setting is activated, as this is required for EAs to function. There are two types of OCO orders available with MTSE. These are OCO breakouts and OCO reversions. Which one suits you best will depends on your Forex OCO strategy of preference.
You would use this order template if you expect the price to breakout clearly in one direction but are unsure if it will be up or down. The order template therefore places two Stop levels — one to buy above the current price, and one to sell below the current price. If the market trends up, you will be buying into the rising market. If the market trends down, you will sell into a falling market. This therefore allows you to capitalise on a big market movement, without having to predict the direction.
Source: MetaTrader 4 Supreme Edition - OCO Breakout
In the screenshot image above you can see that the trader has selected an OCO breakout for the 'Order' type, and has also selected a stop to buy, and a stop to sell with an entry price of 50 pips away for each. If the market rises by 50 pips, the stop order to buy will be executed, and the sell stop will be cancelled. Conversely, if the market falls by 50 pips, the stop order to sell will be executed, and the buy stop will be cancelled.
Scenarios in which you could use such a strategy might include the release of economic figures, or during an important press conference. Basically, times at which you judge a major price move as likely, but when there is uncertainty over which way that move will be. Admiral Markets' Economic Calendar can help you identify impactful events on the horizon.
This is similar to the OCO breakout, but it uses a pair of limit orders instead of stops. Rather than trying to catch a significant move in one direction, you are instead trying to profit from moves that are overdone and about to pull back.
Source: MetaTrader 4 Supreme Edition - OCO Reversion
In the image above you can see that the trader has selected a OCO reversion and has chosen to place their two limit orders 60 pips either side of the current price. Now, if the market rises by 60 pips, the trader's sell limit will be executed, and their buy limit will be cancelled. If the market instead falls by 60 pips, their buy limit will be executed and their sell limit will be cancelled. In this instance, the trader opted to to add a stop-loss and a take-profit to their position if executed, both being 50 pips from their entry price.
You might use this type of Forex OCO order when you think you have identified price levels that are likely to result in a reversion to the mean. In other words, trying to place the entry price for your limit orders at resistance levels, and then hoping that the price will rebound from these points. To appreciate the advantage of an OCO order over simply using two separate, discrete orders, consider a scenario where you are looking for a breakout.
Let's suppose that you are expecting a sharp move in the EUR/USD currency pair over a forthcoming announcement from the FED. You decide that you would like to place a stop order to buy 80 pips above the market, and a stop order to sell 80 pips below the market. Now you could just perform this as two separate orders, or you could choose to do it all using the OCO breakout template.
The disadvantage of the former course of action, is that if the sharp move happens, you are still left with the other order left working. If you no longer want that order, you would have to go to the trouble of manually cancelling it. With the OCO order, it is neatly removed for you automatically, so that you don't have to worry about getting a subsequent fill in the remaining order.
OCO Trading: In Summary
As we have seen, OCO orders allow you to place two orders simultaneously, of which only one can ever be executed. We ran through some basics scenarios in which these might be useful, but for more strategy ideas, make sure to read our related article on The Best Forex Strategies That Work.
You may find that OCO orders dovetail more conveniently with certain strategies than others; the best way to discover what really works best for you is to give it a go. The good news is that a demo trading account is the perfect, risk-free environment to familiarise yourself with how OCO orders work, and to test your ideas out.
This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.