Software comparison – which one is the best? In this article we introduce the Bracket Trader.
One of the biggest challenges to profitable trading is keeping your emotions under control. You’ve probably experienced it a hundred times: after entering a trade, you start to second-guess your rules and adjust your trade management strategy (if you have one). You hectically shift your stops and profit targets and make stupid mistakes, such as clicking the wrong button in the order screen. Your stress levels rise and your account balance sinks.
After taking a loss and gaining some distance on the trade, you realize with annoyance that you’ve once again failed to follow your established rules. If you had stuck to your rules, you would have booked a nice profit or limited your losses at the levels defined by your trading strategy.
If you want to avoid making these unnecessary mistakes in the future, then do what I do: automate your trade management!
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The Bracket Trader -a small but powerful tool
The Bracket Trader is a small tool that I always use when trading the Forex and Future markets on Trader Workstation (TWS) – the trading platform offered by Interactive Brokers. This tool has proved its worth over the years and simplifies my trading enormously.
I use the Bracket Trader to ensure consistent, stress-free management of intraday trades and long-term trend trades.
The Bracket Trader can be used for almost all trading strategies. After you’ve set it up according to your requirements, you only need to click the price in the DOM Trader and the trade is managed automatically. This means that all orders for stop losses and profit targets are activated and processed at the right time. Position sizes are automatically adjusted after partial profit-taking, and much more.
In this article I’d like to present the tool’s most important features using the EUR/USD currency pair as an example. I’ll show you how I use the Bracket Trader in practice.
I’ve decided to use the free version so you can see that it’s all most traders actually need when they start out.
The free version is fully functional and differs from the paid version only in terms of the selectable symbols (stocks, futures, forex).
Basic settings
After you’ve connected the Bracket Trader to your trading platform (in this case the TWS), you’ll need to make a few basic settings.
Start with the menu item “Preferences.”
Make the necessary settings in the Trade Settings menu.
The Bracket Trader manual (click “Help Contents” in the Help menu) contains a description of the individual subitems. I recommend giving careful thought to the settings you make, as they have different effects on order execution. Your trade management rules will only work if you make the right settings.
The Bracket Trader also has a demo mode that you can use to extensively test all the settings in advance. Of course, you can also use the Bracket Trader with the demo version of the TWS and test it live.
Once you’ve defined the basic settings, you can begin configuring the system for your trade management method (“Automatic Trade Management”). This is extremely easy to do, and I’ll walk you through the procedure using the EUR/USD currency pair as an example.
Set position size
First, in the upper right corner, select the position size (# of contracts) you want to trade. In this example, I’ve chosen a position size of 100,000 (1 lot). You can use the default values or enter another position size (e.g. 50,000) by overwriting the values that appear in the cells.
Set Exit Mode
Next, I set my exit strategy. In this example, I intend to sell 50 percent of my position at my first profit target (T1) and move my stop (Stp) up to my entry price (BE) for the remaining position.
To do this, I single-click “2-step” under Exit Mode and “after T1 exit” under BE Mode.
As you can see in the screenshot, other combinations are possible. You have an almost unlimited number of possibilities for trade management. You can experiment with different strategies in demo mode.
I conclude my trade management settings by selecting the values for my stop loss and my first profit target.
Setting the stop (Stp) to limit losses
When setting the stop loss (Stp), I enter, in pips, the value representing my maximum tolerated loss. The pips are calculated on the basis of the money I’m willing to risk and my position size.
In this example I don’t want to risk more than 150 EUR.
For a position size is 100,000 (1 lot), I thus choose the value 0.00150.
This corresponds to 15 pips (100,000 EUR x 0.00150 = 150 EUR).
Setting the first profit target (T1)
When setting the first profit target (T1), I indicate in pips the profit that I want to realize at my first profit target. The pips are calculated on the basis of my desired profit and my position size.
In this example, I intend to realize 300 EUR at the first profit target (T1).
For a position size is 50,000 (1 lot), I thus choose the value 0.00600.
This corresponds to 60 pips (50,000 EUR x 0.00600 = 600 EUR).
Setting the second profit target (T2)
In case the market moves quickly, I also place an order for the second profit target (T2). I initially choose a large value for the second profit target. I will adjust it to reflect the market situation (and my trade management rules) once the first profit target (T1) is reached and the open position is protected by moving the stop to breakeven (BE).
In this example, I plan to realize 1,000 EUR at my second profit target (T2). For a position size of 50,000 (5 mini-lots), I choose the value 0.02000 at T2, which corresponds to 200 pips (50,000 EUR x 0.02000 = 1,000 EUR).
The initially large value for T2 allows me to let my profits run. I can adjust the value for T2 at any time.
Those are the most important settings, but there are many more possibilities. All of the settings work for both LONG and SHORT positions. Bracket Trader makes the necessary order selections automatically.
In order to open a position (LONG or SHORT) and manage it automatically, all I need to do is click the corresponding price in the DOM Trader.
The DOM Trader – simple and impressive
For readers who aren’t familiar with the term “DOM Trader,” here is a simple, short explanation:
The DOM Trader displays the current price on a price ladder (see “Price” column). The visible range of the price ladder can be individually adjusted. For the following explanations, I’ve reduced the price ladder somewhat in size and switched to Bracket Trader’s simulator mode, which makes it possible to check all settings and adjust or correct them before trading.
Simulator mode opens an additional window. This display simulates Interactive Broker’s TWS platform.
In this window, you can clearly see the individual order details that the Bracket Trader automatically implements when I open, manage, and close a position in the DOM Trader.
Opening a position with the DOM Trader
I recommend opening and managing positions mainly in the DOM Trader. In what follows, I’ll use the EUR/USD currency pair as an example to show its advantages.
I find it useful to place the DOM Trader to the right of the chart window (see image).
With this arrangement, you can clearly see the chart and the area in the DOM Trader you use to place orders.
Now let’s place an order in the DOM Trader.
To illustrate the process, I’m going to change the settings for the profit target T1 and my stop loss (Stp) so both can be seen at the same time in the DOM Trader. Because the images (screenshots) were taken at different times and the stock market doesn’t stand still, the displayed prices differ.
As you can see in the screenshot, there is a blue column to the left of the price display labeled “Buy.” To the right of the price display you see a red column labeled “Sell.”
You manually place all buy orders in the Buy column and sell orders in the Sell column. The current price is highlighted in black in the middle of the Price column.
You place a buy order by clicking the desired cell in the blue Buy column. Depending on whether you place an order above or below the current price, the Bracket Trader will automatically add the additional conditions you’ve selected in your basic settings, such as the limit. The same applies to all sell orders in the Sell column (highlighted in red).
The following examples should make this clear.
Placing a BUY order above the current price.
By clicking the cell to the left of the desired price (see the violet arrow pointing to 1.17700), you place a new order.
DOM Trader before the buy order
After the cell is clicked, the background color of the Buy and Sell columns changes.
DOM Trader after a buy order
In the Order Management window, you can now see the open (i.e. not yet executed) order.
This translates as: BUY with a stop limit at 1.17700 and a position size of 100,000.
This means:
You will purchase 100,000 EUR with USD. The order will be activated when the price reaches 1.17700 (STP). It will only be executed if a purchase at 1.17700 or below is possible (LMT).
In this example, the amount for STP and LMT is the same. This amount can differ if you want (depending on your entry strategy). You can make the necessary selections in Trade Settings.
If the price rises to 1.17700, the BUY LMT order will be activated by the additional STP order specification, but not yet be executed. It will only be executed if a trade at your LMT price or better is possible after activation.
The advantage of LMT orders (i.e. that you only get your desired price or better) is also a disadvantage. After all, if the current price doedsn’t return to your desired price after activation, your order won’t not be executed.
If your BUY order is executed, the Bracket Trader will automatically place the corresponding sell orders based on your settings in Automatic Trade Management.
The DOM Trader looks different after your order is executed. In the bar at the top, Buy becomes Target and Sell becomes Stop. The bottom section of the DOM Trader also changes, but that’s not important to us now.
After order execution, the DOM Trader displays your actual execution price (yellow cell). The Bracket Trader now adjusts the values for profit targets, the stop loss, and the breakeven to reflect the execution price. This is a very important feature that prevents your trade management system from getting thrown out of whack.
The Target column (to the left of the Price column) displays the two BUY LMT orders for the two profit targets (green cells).
The Stop column (to the right of the Price column) displays the SELL STP order (grey cell).
You also see the orders for profit realization (SELL LMT) and the current stop loss (SELL STP) in the Order Management screen.
Because we’re working with two profit targets in this trade and we want to sell 50 percent of our open position at the first profit target (as per our settings), the Bracket Trader has divided our 100,000 position into two positions of 50,000 each. For each of these there is an order for the profit target (SELL LMT) and a stop loss (SELL STP).
We now have two SELL STP orders for 50,000 each at a price of 1.17660, one SELL LMT order for 50,000 at a price of 1.1774, and one SELL LMT order for 50,000 at a price of 1.17780.
If the price falls to the price of the SELL STP order, two orders for 50,000 (= 100,000) will be sold at the next possible price in order to limit losses. In addition, both BUY LMT orders will automatically be canceled. This means that all the open orders associated with this trade will be canceled in order to protect you from unwanted executions.
If the price rises to the price of the first SELL LMT order (first profit target), 50,000 will be sold at the LMT price or better.
After the sale at the first profit target, the Bracket Trader will immediately adjust the SELL STP order to limit losses.
In other words, the Bracket Trader will cancel the SELL STOP order for the first 50,000 and change the price of the second SELL STOP order (grey cell) to the BE (breakeven) price. BE is normally the price of the actual execution when you open the position. You can adjust the price of BE upward or downward under Trade Settings. We’ve set BE to plus 1. This means that our SELL STOP order will be set to the entry price plus 1 PIP (0.0001) after the first profit target is reached.
After the first profit target is reached and the stop loss is set to BE, you can now adjust the second profit target or your stop loss according to your trade management strategy. Simply clock the cell on the left (Target) or the cell on the right (Stop).
The open orders for the remaining 50,000 position also appear in Order Management.
Placing a BUY order below the current price.
By clicking the cell to the left of the price you want (1.16950, see violet arrow), you can place a new order.
DOM Trader before the buy order
After you click the cell, the background color of the Buy and Sell columns changes.
DOM Trader after the buy order
In the Order Management window, you now see the open (i.e. not yet executed) order.
This translates as: BUY Limit at 1.16950 for a position size of 100,000.
This means:
You will purchase 100,000 EUR with USD. The order will only be executed if a purchase at 1.16950 or below is possible.
As you can see, the Bracket Trader has automatically used the correct order version. While the previous trade was a BUY STP LMT, it now transmits a BUY LMT order to your broker.
If your BUY order is executed, the Bracket Trader will automatically place the corresponding sell orders based on your settings in Automatic Trade Management.
The DOM Trader once again looks different after your order is executed. In the bar at the top, Buy becomes Target and Sell becomes Stop. The lower section of the DOM Trader also changes, but that’s not important to us now.
After your order is executed, the DOM Traders will display your actual execution price (yellow cell). The Bracket Trader now adjusts the values for the profit targets, the stop loss, and breakeven to reflect the execution price. This is a very important feature that keeps your trade management system from getting thrown out of whack.
The Target column (to the left of the Price column) displays the two BUY LMT orders for the two profit targets (green cells).
The Stop column (to the right of the Price column) displays the SELL STP order (grey cell).
In the Order Management screen, you can see the corresponding orders for profit realization (SELL LMT) and the current stop loss (SELL STP).
Because we’re working with two profit targets for this trade and we want to sell 50 percent of our open position at the first profit target (as per our settings), the Bracket Trader has divided our 100,000 position into two positions of 50,000 each. For each of these there is an order for the profit target (SELL LMT) and the stop loss (SELL STP).
We now have two SELL STP orders for 50,000 at a price of 1.16910, one SELL LMT order for 50,000 at a price of 1.16990, and one SELL LMT order for 50,000 at a price of 1.17030.
If the price falls to the value of the SELL STP order, two sales of 50,000 each (= 100,000) will be executed at the next possible price to limit our losses. Both BUY LMT orders will be automatically canceled. This means that all open orders associated with this trade will be canceled to protect you from unwanted executions.
If the price rises to the value of the first SELL LMT order (first profit target), 50,000 will be sold at the LMT price or better.
After the sale at the first profit target, the Bracket Trader will immediately adjust the SELL STP order to limit losses.
DOM Trader, target 2
After the first profit target is reached and the stop loss is set to BE, you can now adjust the second profit target or your stop loss according to your trade management strategy. Simply click the cell on the left (Target) or the cell on the right (Stop).
In Order Management, you will now see the open orders for the remaining position of 50,000.
Bracket Trader, account display, open orders
Placing a SHORT Order
For a short trade, the procedure is nearly the same as for a long trade. The only difference is the way the Dom Trader is used and its display.
To open a short position, click the corresponding cell in the Sell column (to the right of the Price column).
The Bracket Trader now places the corresponding orders for a short trade.
Conclusion
The Bracket Trader is a very helpful tool. It simplifies your trading and makes it much easier to consistently follow your trade management rules. This is very useful in a fast market. In addition, you can avoid mistakes when entering orders. The free version is a must for all traders.
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