An OCO or 'one cancels other' order is often used by technical
traders who want to be able to enter a trade once they are
confident that either an upward or downward trend is in place.
If we place two orders in the market, one to buy above the
current level (a stop entry order) and one to sell below the
current level (another stop entry order) but connect them using an
OCO the second order will automatically be cancelled the moment the
first order is executed.
For example if the Dow Jones mini futures contract is trading at
a price of 12000 and we leave an OCO order to buy 5 lots on stop at
12050 and sell 5 lots on stop at 11950 our sell stop will be
automatically cancelled if the market rallies to 12050 and vice
versa our buy stop at 12050 will be automatically cancelled if the
market falls to 11950.