Saturday, October 4, 2008

Chart Trading Question

A reader emailed a question about the tipster trendline chart trading code that I thought would be beneficial to others if I posted it. I'm not offering any advice or opinion on the set-ups profit potential, only how the code works and IB's order triggers.

"I attached a graphic, in which you can see, on 1st of Oct. I wanted to short IMS, on breakout of the bottom of the previous candle, but as you can see the candle of 1st of Oct, is a strong up candle. My stop order of sell should not trigger, and my buy stop (which is my stop loss) is set to 12.39$, so what happen in IB."

Line BS is the buy stop order. The price must go below this level for the order to trigger. This is the "Parent" order.

Line ST is the stop loss order. This is a child order, child of Parent order "BS". This order is will not trigger until the Parent order triggers (BS).

Line TA is the target order. This is a child order, child of Parent order "BS". This order will not trigger until the Parent order triggers (BS).

So in this example, if the BS order was a "DAY" order and not a "GTC" (Good 'Till Cancelled) order, at the close of Oct 2 the order BS has not triggered, therefore ST and TA will not trigger. At the close of the day the orders will automatically disappear from TWS and you would not have a position.

How does this work in TWS? To see how this works, left click on the coloumn titles of your order page inside TWS. You need to add a field called "OCA" (One Cancels All). The Parent order (BS) will be blank. The two child orders (TA and ST) will have the same numbers in the field.

When you set up a bracket order manually within TWS, this is basically what TWS is doing for you. You can also do it manually. Try it manually to learn something. You can also use this technique to capture a breakout of a range, such as a squeeze in price, if you want to catch a move to the upside or downside. I haven't played with this type of order very much but I'm sure it can be done so that when you get a break in one direction, the orders for the other direction are cancelled.

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