A sell stop order is mainly an order that will only be place in the market after the stock reach a certain level that is predetermined by you.
If the stock does not reach the level, the order will remain inactive in your home broker until is manually canceled.
One good way to use a sell stop order is to lock in profits that you have made.
Sell stop order: locking in profits This has probably happened to you at least once if not many times: you have bought your preferred stock, the stock moved all beautifully according to your plan, hit your target and then made a pull back.
Unfortunately, you were not watching the screen when that happened and since it was such an explosive move, it was way too quick to let you insert a proper order to sell and get your profit.
A sell stop order would have done the job.
Not losing profits that you have already made in the market is one of the main and most important tasks that a trader has.
It is already hard to earn money in the stock market, so if you still give back any profit that the market has let you earn (yes, the market LETS you earn, the only thing you can do is to be there to grab it!), you will have a hard time making a living out of it.
Conclusion Use a sell stop order wisely and lock on profits.
Decide beforehand at which price - your target - you will want to get out if the stock reaches that point.
Then, set a sell stop order to achieve that and forget it! That way you will not be inclined to do something stupid and see if the stock will move "just a bit higher".
Do not be greedy, take your profit and tap yourself on the back for following your plan.